Super Death Benefit gone terribly wrong
I want to tell you a story of a beautiful young girl, 23 years of age, who has just started her professional career as a clerk in a magistrate court.
Unfortunately, she got involved with a successful magistrate, a man that was 45 years older that she was.
They were in a relationship for about 7-months, living together for 4 months and just got engaged.
As a young, just starting up clerk she was on a modest income, while her partner, very experienced and well-off magistrate was earning a handsome income of $324,000 a year.
Being a young girl, she didn’t have a great deal of assets or savings, but she did have $180,000 in her super fund as savings and life insurance policy combined.
Her 68-year-old partner, I am guessing had much more than that.
But one day there was a tragedy, and a young girl was hit by a car, and she passed away.
That happened only 3 weeks after the very first story of their relationship was officially published in a press.
You see, this is actually a true story that happened in Bendigo in 2019.
The young girl’s struggling mother was listed on the superannuation policy as a beneficiary, but the partner, high class magistrate made a successful claim on the death benefit and was awarded the full payment by the super fund.
The mother had been fighting that decision for 15 months, appealing to the Australian Financial Complains Authority, but she lost.
So what do you think about that story?
Do you agree with the super fund’s decision? Who should receive the money? Was it a right decision to give the money to the rich guy and forget about the poor, struggling mother, although she was listed as a beneficiary?
OK, so I guess you could feel that I was telling that story with a specific purpose. But I wonder if you felt it was unfair to pay the superannuation money to the partner, considering financial situation of the young girl’s mother.
So let’s talk about that situation, why would the super fund make a decision to pay the full death benefit to a wealthy fiancé and disregard the appeal of the mother?
You might feel this a wrong, unethical or maybe immoral decision, but you see, the law doesn’t have to be any of those thigs, the law has to be JUST. And the law has to obey specific sets of rules, in this case the super fund trustee has to follow a set of rules listed in a SIS Act – (Superannuation Industry Supervision Act of 1993) which fully explains superannuation law.
So to understand this decision, first we need to establish:
Who is a dependant under superannuation law
“The law says:
For the purposes of who can receive a super death benefit payment, you are a dependant of the deceased person if at the time of their death you were:
- their spouse or de facto spouse
- a child of the deceased (any age)
- a person in an interdependency relationship with the deceased.
- An interdependency relationship exists between two people 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.
If you would like to leave your super to someone who is not a dependant under the super laws, contact your provider about making a binding death benefit nomination to have the payment made to your legal personal representative. This will ensure your super is distributed according to your will”
Once you understand who you can list as a beneficiary, now you should know:
What type of nomination you should make in your super.
1. Discretionary death nomination
any nomination is better than no nomination, at least this gives the trustee indication of your wishes. A general nomination is so called discretionary nomination, but it is still up to super trustee to decide, super fund can override your nomination if they believe it is not according with the law, superannuation law or not providing the benefit to the beneficiaries that should benefit first.
2. Binding death nomination
this is the type of a death nomination, that is binding on a super trustee. So as long as your nomination is according with the superannuation law, a super trustee has to follow your nomination and cannot override it. Ba aware that a binding nomination might be valid for a period or 2 or 3 years. If you do not renew it, your super will have no nomination at all. Most super funds do send letters to members to remind of the renewal of such nominations, unfortunately lots of people do not pay attention to such letters and their beneficiaries might have problems receiving money.
3. Non-lapsing binding nomination
This is the nomination that is binding the trustee to do as instructed, as long as you list beneficiaries that are acceptable by superannuation law. As the name suggest, it is non-lapsing and this is a great news for your beneficiaries, as you all can feel secure knowing that superannuation money will be distributed as instructed. The problem can appear however if you break up with your partner and you forget to change the nomination.
As you can see, there are pros and cons for every situation.
So now, that you know who can be a beneficiary of a superannuation policy and how the nomination should be made, can you see why the super fund could not have paid that money out to the mother. Even if we believe it was immoral, not fair and cruel, but it was JUST, because the decision fallowed the superannuation law.
Imagine the same situation, but the mother was a very rich lady and the partner a poor bloke that got lucky with a young girl. Would you still believe the mother deserved the money?
I don’t think you would – I rest my case.
So how this situation could have been fixed you might ask.
What a great question!
The mother is not one of beneficiaries listed in the superannuation law, so listing a mother as a death beneficiary in a super does not work.
If a young girl wanted to leave that money to her mother, she should have made a binding death nomination to her estate (to a legal representative). At that point the super benefit would have been paid out to the estate and then distributed according with the girl’s Will (providing she had one). As long as the mother was a listed beneficiary in the Will, she would have received all the money.
I know it is complicated and every case is different, especially these days when we have so many blended families.
This is a great example of the simple situation gone wrong and believe me I have seen plenty of such unintended, but very costly mistakes.
Super Death Benefit is very complex, especially tax treatment. It forms part of your Estate Planning and every person, every family should take it very seriously to avoid very, very costly court cases, when the intended beneficiaries have to fight for their right to inheritance.
If you want to make sure you are doing the right thing by your beneficiaries, that all your super benefits and all other assets you have are paid according with your wishes, please seek professional advice.
It is much more cost effective to pay for a job of an experienced financial planner cooperating with a specialist solicitor, then for your beneficiaries or your estate to pay for lawyers and a long fight in courts, not to mention the emotional drama people go through during such a dramatic time, with no guarantee of the outcome.
If you need any assistance with your super, pension or Estate Planning, I am just a click away.
“Retirement is a Journey NOT a Destination, so please be prepared for the ride”
By: Katherine Isbrandt CFP®
Money Strategist & Retirement Planner
Principal of About Retirement
