Many people are unaware that they cannot easily leave their superannuation funds savings to a loved one or charity upon their death.
In Australia, many people’s superannuation fund is their primary asset. Thus it is important to think about who should receive the money in case of passing away; however, most are unaware that they can’t easily bestow this wealth on anyone or a charity of choice.
Why is superannuation so important?
Superannuation is a crucial part of every Australian’s financial future. As per the current legislation, all employed Australians have at least 10.5% of their income paid into their superfund to assist them in saving for retirement – and it adds up quickly! The Association of Superannuation Funds of Australia has reported that the average Australian currently holds $147,425 in superannuation funds.
The Australian Prudential Regulation Authority reports that Australians have a collective sum of $3.3 trillion saved in superfunds.
In the fiscal year ending September 2022, a total of $88 billion was paid out to recipients. This included pension payments amounting to approximately $40.5 billion and lump sum payouts in the vicinity of $47.7 billion. A portion of these lump sums were distributed as death benefits for passed on superannuation holders, with their beneficiaries receiving such funds after their passing away.
According to Conor Sheridan, a senior associate at Colin Biggers & Paisley’s wills and estate planning department, the immense sum of money stored away in superannuation has become one of the most significant assets for many clients – second only to their real estate.
“For many, superannuation is their largest or only significant asset, particularly where life insurance is attached,” he said.
Despite this, Sheridan noted that many individuals had not properly prepared their superannuation funds for what would happen in the event of their passing.
“[It is] often an afterthought or overlooked entirely, with many clients assuming their super is automatically part of their estate to be distributed in accordance with their will,” he said.
“While this common misconception is easily dispelled, it’s only the starting point.”
What happens to your superannuation when you die?
As superannuation isn’t counted as part of your estate, it’s vital to inform your fund who you want as beneficiaries. According to Georgia Brumby, Director of Advocacy at Industry Super Australia, outlining this decision is critical for ensuring that your assets are ultimately passed on to the people that matter the most.
“Without clear instructions, the fund trustee will use their own legal discretion, which may not exactly reflect your will and can be at risk of claims by other beneficiaries,” she said.
Sheridan said even if a person’s will states their intention for their estate to be split between friends, without the proper steps being taken, the superannuation fund trustee cannot legally provide the money to anyone but a dependent.
The Superannuation Industry (Supervision) Act allows for a limited selection of individuals to be designated as beneficiaries. These include dependents such as spouses and children, those with interdependency relationships which involve close interpersonal ties and cohabitation, plus financial assistance; in addition to legal representatives.
It is critical for those who aim to have their superannuation paid out to someone other than a partner or child, to appoint a legal personal representative. This could be an executor of the will, estate administrator or one granted enduring power of attorney.
The representative will receive the superannuation death benefit and distribute it in accordance with the deceased’s testament, he highlighted. This ensures that their wishes are respected and carried out as intended.
With this in mind, the superannuation funds can be left to family members, friends, or even a pet rescue or art gallery according to their last wishes.
It is essential to be aware that even if someone legally appoints a beneficiary for their death benefit, this isn’t something they can just set and forget.
For legitimacy, the death benefit nomination should be revisited every three years. Brumby highlighted that as life situations change, it’s critical to keep one’s death benefit notification up-to-date and relevant.
“Nominated beneficiaries should be kept up to date, especially after big life events – like marriage, divorce or separation, having children or the death of a relative – to avoid additional stress for your friends and family in the event of your passing,” she said.
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