Benefit disputes a fate worse than death Source: Challenger
The increasing prevalence of blended families is a common factor in many of the death benefit disputes coming before the Superannuation Complaints Tribunal. What most people do not realise is that usually their choice of who can share in the death benefit can only be controlled if they have made a "binding" death benefit nomination with their fund that is valid at the time of their death. Most funds offer binding nominations, but all funds allow members to nominate "preferred" beneficiaries, including how to divide the death benefit between them. But preferred nominations are only a guide to trustees of the fund and this is where disputes can arise.
Regardless of whether it is a preferred or a binding nomination, or no nomination is made, the beneficiary must fall within the definition of "superannuation dependant". The definition of superannuation dependant is wide. It includes those receiving financial support from the fund member. But that is not all. Under superannuation law, a dependant can include an adult child who is financially independent. It includes, among others, a person in an "interdependency relationship": that is, living in a close personal relationship involving financial support and personal care.
The tribunal regularly gives examples of real disputes. In one recent case, it took three attempts to produce the right outcome - two proposals for distributions of the death benefit by the trustees of the fund and the final arbitration by the tribunal. Potential beneficiaries need to look carefully at the distribution proposed by the superannuation fund of a loved one and not assume the fund is across all of the facts. And for those with complex family arrangements, the advice of a lawyer and the drawing up of a will is strongly advised in any event, even if the death benefit question looks straightforward.
Instead of nominating a person, a death benefit can be left to the legal representative of the estate - that is, the executor of the member's estate - and distributed in accordance with the will. That can be a way of benefiting someone who is not a potential superannuation dependant. But a will can always be challenged, including by superannuation dependant who has missed out.
Rigby Cooke Lawyers special counsel Rachael Grabovic says if you want to leave the death benefit to specific beneficiaries and leave people out, the binding nomination can be a safer bet than having it paid to the estate. A binding nomination (unless it is for a self-managed super fund) has to be renewed every three years or it will lapse.
For self-managed super funds the binding nomination may be lapsing or non-lapsing, depending on the fund's deed. Grabovic says someone who is a dependant of the fund member but left out of a binding death benefit nomination would not have recourse to the tribunal. The tribunal does not have the power to override or alter a valid binding death benefit nomination.
Frequently Asked Questions about this Article…
A binding death benefit nomination is a formal instruction to your super fund that directs who should receive your death benefit. It’s important because a valid binding nomination (except in most self‑managed super funds) legally binds the trustee and can prevent disputes — the Superannuation Complaints Tribunal cannot override a valid binding nomination. For many funds a binding nomination must be renewed every three years or it will lapse.
A preferred nomination lets you tell the trustee who you’d like to receive your death benefit and how to split it, but it’s only a guide. Trustees can decide differently, which is where disputes often arise. A binding nomination, by contrast, legally directs the trustee (when valid) and gives you more certainty.
Under superannuation law the definition of a dependant is broad. It includes people receiving financial support from the member, adult children (even if financially independent in some cases), and people in an interdependency relationship — meaning a close personal relationship with mutual financial support and personal care. Regardless of nomination type, recipients must meet the legal dependant definition.
Yes — you can direct your fund to pay the death benefit to the legal representative (executor) of your estate so it’s distributed under your will. That can allow non‑dependants to benefit, but remember wills can be challenged, including by superannuation dependants who miss out.
In SMSFs a binding nomination may be lapsing or non‑lapsing depending on the fund’s trust deed. Rules for SMSFs differ from retail or industry funds, so check your SMSF deed and get advice to understand whether a nomination will lapse or remain valid.
No. The tribunal does not have the power to override or alter a valid binding death benefit nomination. That’s why a correctly completed and current binding nomination is often a more certain way to direct payments.
If you have a blended or complex family, get legal advice, consider a clear binding death benefit nomination if you want specific people to receive funds, and have a properly drafted will. Even when a death benefit looks straightforward, professional advice helps reduce the chance of trustee disputes or tribunal cases.
Potential beneficiaries should carefully review the fund’s proposed distribution and not assume the trustee knows every family detail. If you disagree or the circumstances are complex, consider legal advice — trustees may make multiple proposals and disputes can end up at the Superannuation Complaints Tribunal.
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