Death, disputes and beneficiaries

For most ordinary folk, without squillions of dollars, inheritance is about the handing on of the house and superannuation. With more blended families, there is a steady stream of disputes over superannuation death benefits.

By InvestSMART · 4 Apr 2012

By InvestSMART ·
4 Apr 2012

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Superannuation does not form part of the estate.

For the December quarter of last year, death complaints made up 29.1 per cent of all written complaints within jurisdiction. That was the second-highest category following administration complaints.

Most funds only offer a preferred nomination of who receives their death benefits. Some funds offer binding nominations.

But the claims can always be made with the Superannuation Complaints Tribunal if someone disagrees with the decision of the trustee of the super fund over who gets the money.

When a fund member dies, the fund trustee normally pays the death benefit to one or more of the dependants or the legal representative of the estate. The Australian Securities and Investments Commission website, Money Smart, says for such benefits, the term dependants includes a spouse, children, people with whom the fund member has an interdependent relationship and those who depended on the fund member financially.

Often, when there is a dispute over death benefits, it is the adult children from the first marriage against their parents most recent partner. Generally, unless there is a binding nomination, the trustees tend to pay the death benefit to the partner of the deceased member and not to financially independent adult children. There is overriding thinking about superannuation that guides determinations. That is, superannuation is designed to provide for the retirement of the person or people who would have benefited from the super had the fund member not died.

The only way to make sure that the money goes to adult children is to make a binding nomination. But nominations are only valid for three years and must be renewed

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Frequently Asked Questions about this Article…

What happens to my superannuation when I die — does it form part of my estate?

Superannuation generally does not form part of your estate. When a fund member dies, the fund trustee normally pays the death benefit to one or more dependants or to the legal representative of the estate rather than treating super as estate property.

Who counts as a dependant for superannuation death benefits?

According to ASIC's MoneySmart, ‘dependants’ for super death benefits include a spouse, children, people in an interdependent relationship with the member, and anyone who depended on the member financially.

How do trustees decide who receives superannuation death benefits?

Trustees consider nominations (preferred or binding), who qualifies as a dependant, and the underlying idea that super is meant to provide for those who would have benefited from the member’s retirement. In practice, trustees often pay a death benefit to the member’s partner rather than to financially independent adult children unless there’s a valid binding nomination.

What is a preferred (non‑binding) nomination versus a binding nomination for super death benefits?

A preferred nomination tells the trustee who you would like to receive your death benefits but is not always legally binding on the trustee. A binding nomination (available from some funds) requires the trustee to pay the nominated beneficiaries, subject to the fund’s rules.

How can adult children make sure they receive a parent's superannuation death benefit?

The article says the only reliable way to ensure money goes to adult children is to have a binding nomination. Without a binding nomination, trustees commonly favour the partner of the deceased over financially independent adult children.

How long is a binding nomination valid and what should I be aware of?

Binding nominations are only valid for three years and must be renewed. That means you need to update or re‑submit the binding nomination regularly to keep it effective.

What can I do if I disagree with a trustee’s decision about who gets a superannuation death benefit?

If someone disagrees with the trustee’s decision, they can make a claim with the Superannuation Complaints Tribunal to challenge the handling of the death benefit.

Are disputes over superannuation death benefits common, and who is usually involved?

Yes — disputes are common, especially in blended families. For the December quarter referenced in the article, death complaints made up 29.1% of all written complaints within jurisdiction, often involving adult children from a first marriage versus the deceased member’s most recent partner.