Super Informed Radio episode #26: Who gets your super when you die?
|Disclaimer: What you're about to hear is of a general nature and doesn't take into account your personal financial situation, needs or objectives. We recommend you seek financial advice before making any decisions about your super and consider the relevant UniSuper product disclosure statement.
Lyndon: Hello, and welcome to Super Informed Radio, the podcast that unpacks the world of super, finance, and life's money matters. I'm Lyndon.
Tania: And I'm Tania.
Lyndon: And, Tania, today we are covering what could quite possibly be the most riveting topic we've ever delved into on Super Informed Radio, ‘Who gets your super when you die?’
Tania: We're actually going to try and flip this one on its head, though, Lyndon, because if you think about it, it's actually empowering, and frankly, a relief to get this kind of thing sorted. And people need to know it's really not that scary. You can actually sort it out reasonably easily.
Lyndon: And doesn't everyone want one extra thing off their mental to-do list, Tania? I know I do. So, today, we are inviting back one of our UniSuper experts, Charles Azzopardi, to the microphone to take us through the basics, and help get us all on track.
Tania: Charles is an adviser here with UniSuper Advice, our financial advice arm. He deals with this kind of stuff day in, day out. He knows all the rules. There's no question too stupid. He's heard it all before. So, this is a safe space.
Lyndon: Absolutely. Let's take a listen.
Lyndon: Charles Azzopardi, welcome to Super Informed Radio—welcome back, in fact.
Charles: Thank you so much for having me, Lyndon.
Lyndon: Charles, I guess, firstly, let's talk about super as an asset. Is it an asset like any other kind of asset? Like, why doesn't it just form part of someone's estate when they pass away?
Charles: Yeah. So, when we're talking in the context of someone's estate, super is a different type of asset. In fact, there are a number of assets that people might own that are not estate assets. So, that's one of the first things that people need to think about and establish. In looking at what they own, and superannuation is one of those things, people can have a number of assets that are not ‘estate assets’. Another example of that might be a home that's owned jointly, so as joint tenancy with their spouse. And life insurance is another one like that, too. So, superannuation, again, we need to think about who we're nominating as beneficiaries.
Tania: When you talk about beneficiaries, who can you nominate? Are there rules around who can and can't get your money?
Charles: Absolutely. So, in the context of superannuation, there's only certain dependants that we can nominate. There are four key areas that I sort of think of it as, but there's your spouse, there's your children, and then there's someone who is interdependent on you or has a financial dependence on you at the time of your death.
Lyndon: When you say interdependent, can you give us an example of what that is?
Charles: Yeah, OK. So, there can be an instance where there might be, for instance, two elderly sisters living together who share their income or their assets and their resources, and help each other out. And they might actually help each other out on a lifestyle basis as well. Maybe one of them is taking care for the other, you know, assistance around disability or assistance with their lifestyle, but there's a genuine dependence there between them.
Lyndon: Right. So, this category of dependants—there is, as you mentioned, the financial dependants, then there's that kind of dependant which may be people who are living together and are dependent on each other. And then there are, for want of a better term, family members—spouses, husbands and wives, and children.
Charles: Yeah. The children can be of any age but there are different tax implications that can have an impact, depending on their age.
Tania: And do we, as a super fund, decide what an appropriate dependant is? Can people come to us and ask, "Can I put my super to something," and we can come back and say, "No, you can't. That's not an appropriate dependent under the rules"?
Charles: So, people can nominate who their dependants are or who they wish their beneficiaries to be. Those beneficiaries need to be allowable dependants under the superannuation rules, and that's going to get assessed at the time of death.
Tania: OK. So, we don't assess it before death. We don't say, "Oh, actually, that won't get through." It's afterwards.
Charles: Correct, someone might be a dependant at the time they’re nominated and may not be a dependant at the time of your death.
Lyndon: I guess the classic example is you kind of go, "Oh, I'm going to nominate my sister because I want my sister to have my super." She would only be classed as eligible, if that's the right term, if she was a dependant of mine.
Charles: Correct, at the time of your death.
Lyndon: Yeah. Obviously, that's just a made-up example. And there's also another category, Charles, the ‘legal personal representative’?
Lyndon: Can you go into that, is that ‘estate’? What does that actually mean, that you can nominate your legal personal representative?
Charles: Yeah. So, the legal personal representative becomes a person who's making the claim to the superannuation fund on behalf of the estate. So, that should be, generally speaking, the executor where the person's made a Will and nominated an executor, or joint executors. If they don't have a will, then it'll be the administrator, the person who's applied for letters of administration.
Charles: And so, it becomes that person's responsibility to actually receive the superannuation proceeds and distribute those funds in accordance with the person's wishes, any bequests or how the estate is to be divided up in accordance with the Will. Or in the case of no Will, then the laws of intestacy.
Lyndon: What a weird word.
Lyndon: So, with what you were saying there about the legal personal representative, you could actually... is it true that you could decide, "Hey, I want my super to go to," I don't know, your cat or your sister or whatever, but that would have to come through a nomination via the estate? Because a lot of people would probably... do you understand what I mean?
Charles: OK, yeah. Look, I sometimes get the question. When they've thought about who the eligible superannuation dependants are, sometimes people may not actually have one. So, if they're, I guess, mature age, they didn't have children and no longer have a spouse, there may not be a superannuation dependant. They might actually have the wishes where they want, you know, whatever's remaining in their superannuation to go to charity or to siblings or nephews, nieces.
Lyndon: And they wouldn’t qualify as a dependant.
Charles: So, they're not qualifying as a dependant, but people would like to make arrangements so there’s certainty as to where the funds are going. So, this is one of those examples where pretty much the only option the person has is making their nomination to their legal personal representative. And in the Will, they can specify the charities or the beneficiaries, who they're going to be that they want to make their funds go to. And it'll become the executor’s responsibility to divide the funds up appropriately, and deal with the relevant taxes as well.
Lyndon: Yeah. Right.
Tania: So, you can't give your super to your cat.
Charles: You may have some trouble with that under a Will, too.
Tania: Have you ever been asked if you can give your super to your pets?
Charles: I have. Yeah.
Tania: Yeah? OK, interesting.
Charles: And I'm sure there's people who... we refer people to estate planning specialists where there are sometimes some interesting and complicated needs that people have. But people do sometimes have those sorts... Well, I mean, at the same time, they need to think about who's going to look after their pets and things like that. So, people will draft up things like letters of wishes and things like that to give people guidance, to give executors guidance.
Lyndon: That's a really good point. It's probably a topic for another day, but it kind of draws attention to the importance of having a Will and estate planning and all of those things that you would see day in, day out.
Charles: Absolutely, yeah, because there's tax implications to be thinking about. We live in times that are a bit more complicated. And there's no such thing as, you know, the traditional family. So, definitely, an area like estate planning can sometimes need to entertain a Will that's not just, you know, the sort of Will that you pick up at the post office or something like that.
Tania: If we just shift focus a little bit and put ourselves in the shoes of a listener who wants to nominate a beneficiary, could we just go through some of the terminology that we've got — non-binding, binding, lapsing, non-lapsing, reversionary? It's quite complicated for the everyday person. So, if we could just get a bit of a breakdown on what that all means, that'd be great.
Charles: Yeah, sure. Look. I guess, you know, one of the things after you listen to something like this, you might be wondering, "Oh, what have I actually done," or, you know, "Where do I sort of stand with this?".
So, in the statements that people do get from, for instance, UniSuper, beneficiaries are listed there. And where people haven't made a beneficiary nomination, then there'll be an image and a bit of a statement there making the point that you don't have any beneficiaries listed. People can also look at their online account by just logging in. The overview page, if you're scrolling towards the bottom, that'll be shown there.
So, quite often there's a great majority of people that have what's known as a non-binding nomination. The other term that's often used is a preferred nomination.
Lyndon: What does that actually mean, Charles?
Charles: It's really just an instruction or a piece of information, I'd like to think of it as, to the trustee such as UniSuper, telling the trustee that it would be your intention that you would like your superannuation to go to these parties. But the trustee has a process that they have to follow, and that includes waiting for a period of time, six months, for claims to be made. And then they need to make an assessment as to whether to follow your preferred nomination or non-binding nomination, or whether in fact one of the claims has enough grounds in which to make a payment that is different to what you've nominated.
Charles: So, under a non-binding nomination, you've given some information to the fund to help them make a decision, but you're still leaving the ultimate decision with the trustee of the super fund.
Lyndon: So, you’re sort of signalling your intention, but not saying this is definitely what it is. Because I understand the one you were referring to earlier, the binding nomination, is actually like a legal document that they have to. Is that right? Could you tell us about that?
Charles: Yeah. With a binding nomination, the trustee of the super fund must pay in accordance with who you've nominated, and in those proportions, provided it's valid at the time of death. So, binding nominations do give people, I guess, a much higher level of certainty around their overall estate planning. Because superannuation's often becoming a much bigger asset, you know, for people as they head towards their retirement. Often, it's their superannuation and/or their pension, and their home.
So, binding nominations do however... Because they can't be changed, they do require a little bit of thought in that you're making the right choice.
Lyndon: You can cancel them, though, can't you? And make a new one?
Charles: Yeah. Whilst you're alive and you have mental capacity, you can change your binding nomination.
Charles: But a power of attorney can't change that for you or if you've lost your mental capacity, then the binding nomination is going to stick, which brings us onto another important point about how, you know, most binding nominations out there—particularly industry funds—have an expiry period of three years. And UniSuper offers a choice around making that expire in the three-year period or ‘non-lapsing’, so that it doesn't expire.
Lyndon: Yeah. That's right. Our forms have the terms ‘lapsing’ and ‘non-lapsing’. So, the ones that lapse, they last for three years unless you cancel them or whatever. But if they're non-lapsing...
Charles: If they’re non-lapsing, they will continue to be in force, ongoing. Whereas the lapsing one at the three-year point in time, the fund asks the member if they want to renew that death nomination.
Tania: What are some of the reasons that you might want to change your nomination for your beneficiary?
Charles: Yeah. All sorts of life events—marriage or separation, you know, if you're widowed. Other events might be, I guess, there can be gifts made to children. So, that can sometimes warrant either a change in nomination for super and/or a change or an update in your Will or some sort of contract to be made. So, that can often happen where people have got two or three children, make a substantial sort of gift in helping them in an important stage in their life when that's still yet to happen for the other siblings. Sometimes, it can just be a change in wishes. Some people update their estate when grandchildren come into the picture. And so, that can sort of, probably not as much as applicable for superannuation, but still can mean changes for their overall estate planning.
Tania: And the big question—what happens if you don't have a beneficiary listed for your super? Where does it go? What happens?
Charles: Depending on whether there was a Will, so something might have not nominated in their super but done a Will. In which case, the executor would then want to apply to the fund as the legal personal representative. And then it depends on whether there's other claims that the trustee has to consider that against.
Lyndon: What, like a long-lost kid who's come out of the woodwork?
Charles: Yeah. Spouse.
Lyndon: That happens, yeah? Or could happen.
Charles: It can happen.
Lyndon: Although there would need to be a dependant. Oh, hang on no, they’d be a child so they would be a dependant. If they could prove it.
Lyndon: So, let me just break this down, Charles. I'm going to try and summarise everything that we've discussed today so far. If I'm out there listening to this podcast and I'm now starting to think about this stuff, I think this is how I understand it.
I can tell UniSuper who I would prefer my super to go to, pretty much at any time by logging into my online account and doing that. I can change it, I can cancel at any time. That kind of thing is really easy. If I wanted to make a binding nomination—that legal nomination you're talking about—it's a little bit more involved because you have to have it witnessed and stuff. But it is a form that you fill out, and provided you follow the form, you can do that and submit it to the fund, and then you can either be, like you said, lapsing—so it expires in three years—or it can be non-lapsing, in which case it continues.
Lyndon: And the people you can nominate have to either be your dependants or the legal personal representative. And it's actually that simple.
Lyndon: He's like, "Kind of."
Tania: It just means your super goes where you want it to go. It's worth doing.
Charles: Correct, yeah. It's not just superannuation as well. I just heighten the importance on this a little bit. For some people, they think, “but I don't have much in my super”. But they have life insurance in their super. That life insurance can be pretty substantial.
Lyndon: Yeah. In some cases, like you said, way more than super.
Charles: Absolutely, and that's exactly what, you know, I guess the spouse are the children are going to be highly reliant upon in such an instance. So, yeah. That does come up a fair bit. People sort of downplay the importance of it, but it is important.
Tania: Thanks, Charles, for coming in today. It's been fantastic to hear about beneficiaries, and getting a breakdown of what it all means and how important it is.
Charles: Thank you so much for having me, Tania and Lyndon. It's been great.
Tania: That was Charles Azzopardi, a Private Client Adviser with UniSuper Advice, talking to us today about the importance of setting up a beneficiary for your super. While it's not the nicest of topics to talk about in terms of when you die, it is very important to make sure your hard-earned money goes where you want it to.
Lyndon: Exactly right. And if you want to do that, probably the best way to get that all happening, is log in to your online account and go to the beneficiaries section. In that section, as it exists today. there is a table which outlines quite clearly, I think, the differences between the two types of nominations—that kind of more intentional preferred one, and the binding one that Charles was talking about. If you want to do the intentional one, you can do that straight away. And if you want to do the binding one, there's a button there you can click and download the form, and get it happening.
Tania: We will also include links and relevant information in our show notes for today's podcast. And that brings to the end of another episode of Super Informed Radio. If you’d like more information, or to listen to any of our previous podcasts, go to unisuper.com.au/podcasts, or you can subscribe through any good podcast app. We'll see you next time.
Lyndon: Bye for now.