Superannuation Death Benefit Nominations for Expats – Over the course of an expats lifetime, superannuation is likely to become one of their largest and longest held assets.
As such, it is important for Australian expats to consider your superannuation death benefits carefully when reviewing your estate planning needs.
We find that despite its significance, many expats do not realise that their superannuation death benefits do not automatically form part of their estate (Will). This is because superannuation death benefits are held by trustees of the fund which carries different rules.
These rules and legislations allow the trustees to make decisions of how your benefits are paid. Accordingly, to ensure your superannuation death benefits are paid to the right people, you need to nominate a death benefit beneficiary (this can be more than one person).
Types of Superannuation Death Benefit Nominations
A superannuation beneficiary will generally fall within four types of death benefit nomination.
- Binding Death Benefit Nomination
- Non-binding Death Benefit Nomination
- Non-lapsing Binding Death Benefit Nomination
- Reversionary
Binding Death Benefit Nomination (BDBN)
A binding death benefit nomination allows you to give a direction to the trustee of your superannuation fund as to who will receive your superannuation benefit after death. This nomination is only valid for a period of up to three years, at which point it will lapse if not renewed or changed. Assuming the nomination is valid at the time of death, the trustee is bound by law to follow it.
Non-binding Death Benefit Nomination
Similar to BDBN, a non-binding death benefit nomination provides the trustee with a guide to how and who you would like your death benefit paid to. As the name suggests, this nomination does not bound the trustee to follow your instruction but acts only as a guide, therefore the trustee retains total discretion to distribute the death benefits to the deceased’s dependants or estate.
Non-lapsing Binding Death Benefit Nomination
A non-lapsing nomination is a binding death benefit nomination without an expiration and will usually last forever unless it is cancelled by the individual. In this case, the trustee is bound by law to follow the directions of the individual. It is advisable to review your nomination frequently to ensure your wishes are still current.
Reversionary
A reversionary nomination differs from the above types as this relates to a pension account. A reversionary nomination is relevant for a member who is receiving an income stream. This allows them to nominate a beneficiary to continue receiving their pension benefits as income stream after death.
The trustee is bound by law to transfer the pension to the beneficiary rather than being paid out in one lump sum.
Who can a expat nominate as a beneficiary?
A valid nomination must be either a dependent or a legal personal representative.
Who is classified as a dependent?
- A spouse
- A child
- any person(s) financially dependent on the member
- any person(s) in an interdependency relationship with the member
- Legal personal representative
Who is a financially dependent individual?
A financially dependant individual, as said in the name is anybody who is significantly financially dependent on another, where the individual is unable to meet their normal living expenses without the financial support of the other person.
Put simply, a person that relies on you for financial support. Commonly financial dependants will be living with you, like your children, a relative or parent that you care for. Dependants can be over 18 years of age and still be dependent on you.
What classifies an interdependency relationship?
An interdependency relationship is classified between two individuals if they have a close personal relationship, they live together, one or each of them provides the other with financial support and one or each of them provides the other with domestic support and personal care.
For example, interdependency relationships may include those between platonic long-term housemates or partners, siblings or between an adult child who lives with and cares for an ageing parent on a long-term basis.
This is important to identify because if an individual can show that they were in an interdependency relationship with a deceased person, they are able to make a claim to receive the deceased person’s superannuation benefits.
Who is a legal personal representative?
A legal personal representative is an individual who is legally authorised to represent the deceased individual and deceased estate (if required).
It is common to have a legal personal representative as your beneficiary if you want the death benefit to go to someone who isn’t a dependent.
Invalid death benefit nomination
Superfunds do not have a requirement to cross check your binding nominations at the time of submission, rather it is up to the individual to ensure they have made a valid nomination.
A valid beneficiary can only be a dependent or a legal personal representative, you cannot nominate a parent, sibling or a friend unless they are financially dependent on you.
Some frequent errors:
- The form has not been witnessed correctly (i.e. the form was witnessed by the nominated beneficiary).
- The has been signed and dated incorrectly.
- The death benefit allocation does not equal 100%.
- A beneficiary is not a dependent or legal personal representative.
As expat Financial Planners, it is very common for us to come across invalid beneficiary nominations which unfortunately can open opportunities for untasteful estate complications such as disputes.
A dispute over a death benefit arises when the member did not nominate a beneficiary, or the previous nomination has lapsed leaving the discretion of the death benefit in the hands of the trustee.
Scenario – Australian Expats Death Overseas
Let’s review a case study of an invalid beneficiary nomination.
Tim age 62, living alone in the US has a retail superannuation account with HUB24, he submitted a binding death benefit nomination on his account to have his sister Shelly in Australia receive 100% of his death benefits.
Due to a decline in health, Tim passed away and his sister submitted a claim on the death benefit. Upon Tim’s death, HUB24 moved to verify the validity of his existing binding death benefit nomination and discovers that Tim nominated his sister who was not financially dependent on him.
In this scenario, HUB24 will not be able to direct Tim’s death benefit to Shelly as she is not a valid beneficiary. HUB24 as the trustee will now use their discretion of who to pay the death benefits to and how much to pay each beneficiary.
It is not uncommon for a ‘potential beneficiary’ to put forward a claim to receive the death benefit, or dispute a decision from HUB24.
So, what could Tim have done differently? Since Shelly is not classified as a dependent, one solution would be to have a valid Australian Will outlining Tim’s wishes for Shelly to receive his benefits.
Tim would then need to nominate a legal personal representative on his superannuation death benefit. In this case, the legal personal representative will be the executor of Tim’s Will, and they will also distribute the death benefit to Shelly in line with Tim’s wishes.
Double check your nomination
If you are yet to make a nomination, every Australian superannuation fund will have their own individual form that can be downloaded online and submitted.
Expats arranging their superannuation death benefit nominations is generally a morbid topic and can become a rather complicated area, however, it plays a vital role in a expats overall estate planning affairs.
It is important to take great care when drafting and managing the nominations on your superannuation death benefit.
If you are concerned about the validity of your Superannuation death benefit nomination, please connect with one of Atlas Financial Planners to arrange a consultation.
