MAKING THE RIGHT CHOICE: A Guide to Super Beneficiary Nominations for All Ages

BY WEALTH ADVISER

Introduction

Beneficiary nominations are a vital aspect of superannuation that often go overlooked. For people at any stage of life, making informed decisions on these nominations can protect their intentions for their loved ones and provide essential peace of mind. Whether you’re early in your career, have a family, or are planning your retirement, choosing the right super beneficiary nomination can ensure your superannuation is distributed as you wish, helping to avoid potential pitfalls and legal complications. This guide explores the key types of beneficiary nominations, offers considerations across life stages, and provides practical advice to help you make the best choice for your unique situation.

Understanding Beneficiary Nominations

Why Nominations Matter

Nominating beneficiaries for your superannuation allows you to direct where your super balance and any associated death benefits go if you pass away. Without a nomination, these benefits may not be distributed as you intended, which can be particularly challenging for family members or dependents who may be left out. By understanding how each type of nomination works, you can make choices that align with your financial and personal goals.

Overview of Key Nomination Types

1. Binding Nominations: Binding nominations offer certainty, directing the super fund trustee to pay your death benefit to specific beneficiaries. Within binding nominations, you can choose between:

• Lapsing Binding Nominations: These expire every three years and must be renewed. They require specific documentation, including witnessing, which ensures the nomination’s validity.

• Non-lapsing Binding Nominations: Increasingly common, these don’t expire, offering a “set and forget” option that can be suitable for stable, long-term relationships, such as a spouse or a financially dependent adult child.

2. Non-binding Nominations: Non-binding nominations offer flexibility by allowing trustees to use discretion, taking into account the nominated beneficiary along with other potential dependents. This option may be suitable if you want to provide guidance but allow flexibility for changing circumstances.

3. Reversionary Beneficiaries: Available for pensions, reversionary nominations ensure that your pension income stream continues to a nominated beneficiary, such as a spouse or minor child, rather than ceasing at your death. Reversionary nominations can benefit long-term retirement planning by delaying taxation and social security impacts on the recipient.

4. No Nomination: If you don’t make a nomination, the super fund’s trust deed dictates the recipient(s) of your death benefit. This may lead to undesirable outcomes, especially if your family dynamics are complex or if the default recipient isn’t in line with your wishes.

Choosing the Right Nomination Type

Considerations Across Life Stages

Making the right nomination choice depends not only on current family or financial situations but also on future changes. Here’s a breakdown of how each stage of life might influence your nomination:

• Young Professionals: For those starting their career, a binding or non-binding nomination can be useful, as it’s easy to update as circumstances change. Even without dependents, nominating a family member can ease the burden on loved ones if the unexpected happens.

• Families and Dependents: If you’re supporting dependents, a binding nomination provides certainty for loved ones. You may also consider a reversionary nomination if you’re drawing a pension, ensuring that your spouse or child continues to receive income.

• Retirees: As you approach retirement, your super becomes a crucial part of estate planning. Reversionary nominations or non-lapsing binding nominations are often ideal to ensure continuity of income and to minimise the need for updates.

Special Circumstances

In some cases, such as blended families or dependent children from previous relationships, careful consideration is needed. Self-managed super funds (SMSFs) allow members more control over nominations, often offering clauses in trust deeds that tailor distribution based on personal situations. Understanding the options within your specific superannuation fund or SMSF can help accommodate these nuances.

Common Traps and Pitfalls

Lapsing vs. Non-Lapsing Nominations

One common issue with lapsing binding nominations is that they must be renewed every three years, which is easy to overlook. If not renewed, they may become invalid, leaving distribution to the trustee’s discretion. This makes it essential to keep track of nomination expiry dates.

Legal Requirements

Binding nominations require specific documentation, such as witnessing by individuals over 18 who are not beneficiaries. Without these details, your nomination may be deemed invalid. Reviewing these requirements with your superannuation provider or a financial adviser can avoid complications later on.

Case Studies: Real-Life Examples

• Chai’s Story: Chai, injured in an accident, made a binding nomination designating his father, who became his primary carer, as the beneficiary. Due to complex family dynamics and lack of legal review, Chai’s nomination could have been challenged, but the binding nomination prevented disputes and ensured his wishes were respected.

• Charles’ Case: Charles nominated his de facto spouse and minor child in a binding nomination but also listed his sister, who was initially a dependent but later lost that status. Upon his death, the nomination became invalid, and the trustee’s discretion led to a division of benefits that conflicted with his original intentions.

Keeping Your Nomination Up-to-Date

Life Changes That Affect Nominations

Significant life events like marriage, divorce, or the birth of a child often change how you want your super distributed. Regularly reviewing and updating your nominations can help reflect these changes accurately. Changes in financial status, dependents becoming financially independent, or a shift in your relationship status may also necessitate an update.

Practical Tips for Regular Reviews

• Annual Review: Make it a habit to review your nominations each year, or whenever there’s a significant change in personal or family circumstances.

• Seek Professional Advice: Consulting a financial adviser can be invaluable in making sure your super nominations align with your estate planning goals, especially in complex situations like blended families or cross-jurisdictional concerns.

Conclusion

Choosing the right super beneficiary nomination is an important part of planning for the future. By understanding the types of nominations available, considering your personal circumstances, and regularly reviewing your nominations, you can ensure that your super will be distributed in line with your wishes. For added security, seeking advice from financial professionals can help ensure your super aligns with your broader estate plans and provides the peace of mind you and your loved ones deserve.