More and more we are seeing clients who have substantial superannuation balances. Superannuation has special rules and procedures for distribution of death benefits. These requirements will often include some kind of nomination process where the super fund member requests the fund trustee to pay their benefits to a particular person in the event of their death. Unfortunately, we often see clients who have completed nomination forms for their super death benefits that just don’t work. That is, they’re invalid.
Subject to the trust deed of the super fund concerned, the general, default position of super death benefit payments is that they are paid according to the discretion of the fund trustee. If a member makes a death benefit nomination to the fund trustee that’s invalid, the nomination will fail and the default position (discretion of the fund trustee) will apply.
We often see death benefit nominations prepared by clients that are invalid. One of the requirements for a valid superannuation nomination is that the nominated person is a ‘dependant’ for superannuation purposes. The legislation governing superannuation states that a dependant of a member can include:
- The deceased’s spouse;
- The deceased’s children;
- A person who was, at the date of the deceased's death, financially dependent on the deceased;
- A person who is, at the date of the deceased’s death, in an interdependency relationship with the deceased. An ‘interdependency relationship’ is a close personal relationship between two people who live together, where one or both provides for the financial, domestic and personal support of the other.
Note that superannuation can also be paid so that it passes via the deceased’s Will.
We sometimes see superannuation death benefit nominations made to grandchildren. If the grandchild and the super fund member are in an ‘interdependency’ relationship at the member’s date of death, this will work. However, a nomination to a grandchild where there is no interdependency relationship at death will be invalid.
We have also seen nominations to a member’s siblings and to their parents. The above comments also apply to these situations.
So, if a super death benefit nomination is made to a grandchild the nomination will most likely be invalid. If the nomination is invalid it will fail. If the nomination fails we are thrown back on the default arrangement – the discretion of the trustee. The better way is to have superannuation money paid via your Will and then include gifts to grandchildren in that document.
As a final observation, it’s worth noting that the fund trustee will not assess any death benefit nomination received by them and advise the member whether, in the view of the trustee, it is a valid or an invalid nomination. The trustee will simply accept the nomination as is for filing on their system, even though it may be found to be invalid when later relied on.
Unless superannuation is paid to grandchildren via a Will, it's perhaps best to make 'non-superannuation' gifts to them instead.
