Who makes the decision regarding your superannuation death benefit? How do they make that decision? How do you nominate beneficiaries, and what if your Will says something different from what your super-fund nomination form says? These are all important questions, so read on to find the answers—and peace of mind.
If a member of a superannuation fund dies, the fund’s trustees typically distribute the superannuation death benefit to the financial dependants of the deceased. The proportion of the distribution among the beneficiaries — if there are more than one — usually depends on the level of dependence each beneficiary had upon the deceased.
Say, for instance, a child was dependent on their late parent for needs such as school fees, food and housing. That child might receive a higher proportion of the superannuation death benefit than would an independent child who’s over the age of 18, was no longer living with the parent and perhaps had less contact with the deceased.
Again, weighing up the level of dependency and relationship factors in making a decision as to the distribution of the benefit, ultimately rests with the super fund’s trustees.
The inter-dependence test
There are currently 2 tests to establish an interdependency relationship with the deceased; the basic test and the disability test.
The basic tests sets out that people are considered to be in an interdependency relationship if they:
- have a close personal relationship;
- live together;
- one or each of them provides the other with financial support; and
- one or each of them provides the other with domestic and personal support.
In making these decisions, trustees generally consider evidence that reflects the closeness of the relationship between the beneficiary and the deceased, whether they were living together and whether they were sharing finances such as bills, joint mortgages and living expenses.
There are, however, other considerations and exceptions. If you do not satisfy the basic test, you can still be considered to be in an interdependent relationship with the deceased if you qualify under the disability test. The disability test sets out that people are considered to be in an interdependency relationship if they:
- have a close personal relationship; and
- they do not satisfy one or more of the other three elements of the basic test (above) because either or both of them suffer from a physical, intellectual or psychiatric disability.
For example, if a person living with their spouse is diagnosed with an illness that requires them to move into a nursing home, where they subsequently die, they may still satisfy the interdependence test, even though they’re no longer living together or sharing finances.
How can you ensure that the payout goes to a particular person?
Most, but not all, superannuation funds allow members to make a binding nomination as to the beneficiary — or beneficiaries — of their death benefits. (Fund members need to inquire about this with their particular fund.) For those funds that do allow a binding nomination, members need to renew that nomination every three years, or it lapses. It’s important to be mindful of this time limit.
Even if a fund member does nominate a beneficiary and then passes away, another claimant may still come forward, perhaps saying ‘Hang on a second; I’m financially dependent on the deceased even though I’m not the nominated beneficiary and I wasn’t living with them when they died’. In such cases, the trustees will again look to the interdependence test which includes considerations like financial depedence.
What role do Wills play?
Naming someone in your Will to receive your superannuation death benefit or your super insurance—as opposed to nominating a beneficiary through the fund—does not necessarily mean the trustees will distribute the death benefit to that person. The binding nomination form is still the way to go.
If a Will dispute should arise, a binding nomination will likely hold more weight than a Will, provided that the fund member has indeed renewed the nomination within the requisite three years. Compared with a Will, a binding nomination can be much more convincing of the deceased’s intention.
If a fund member makes no binding nomination, which is often the case, the trustees will have regard to the interdependency test. If trustees cannot identify a beneficiary that satisfies the interdependency test, the trustees usually pay the superannuation death benefit to the deceased’s estate which is when the money is distributed in accordance with the deceased’s Will—if they have one.
Hayriye Uluca is a lawyer in Maurice Blackburn’s Greensborough office.