Superannuation that requires careful consideration is the binding nomination, which determines who will receive your super benefits in the event of your passing. However, what happens if your binding nomination is invalid? Let's explore this scenario through the example of a married couple.
Consider John and Sarah, a married couple who have nominated each other as beneficiaries of their respective super funds. This is a common practice among couples, as they want to ensure that their spouse will receive their super benefits when they pass away. However, life is unpredictable, and sadly, John and Sarah pass away unexpectedly at the same time.
In this situation, both John and Sarah's nominations become invalid because the nominated person is deceased. This means that the trustee of the super fund must step in and make the decision regarding the distribution of John's super benefits.
Here's what typically happens when a binding nomination becomes invalid:
Trustee Discretion: Superannuation funds often have rules outlined in their trust deeds that provide guidance on how to handle situations like this. In most cases, the trustee is granted discretion to determine the distribution of the deceased member's super benefits.
Evaluation Process: The trustee will carefully evaluate the circumstances and consider any relevant factors. They may take into account the deceased member's financial dependents, relationships, and any valid documentation provided.
Estate Payment: In many cases, when a binding nomination is invalid, the super fund will end up paying the funds to the deceased member's estate. This is often a standard practice outlined in the trust deed and can help simplify the process of distributing the benefits.
Will Instructions: Once the funds are paid to the member's estate, they become part of the deceased's assets. The distribution of these assets will then be governed by the instructions outlined in the member's will. If there is no will, the estate will be distributed according to intestacy laws, which vary by jurisdiction.
While this approach ensures that the deceased member's super benefits are eventually distributed, it can take longer than if a valid binding nomination had been in place. The trustee's discretion, evaluation process, and adherence to trust deed rules can introduce delays in the payment of benefits, making it crucial for individuals to keep their nominations up to date.
In conclusion, it's essential to understand that a binding nomination can become invalid due to unforeseen circumstances, such as the nominated person's death. In such cases, the trustee of the super fund steps in, following established rules and guidelines to ensure the fair and appropriate distribution of the deceased member's super benefits, often by paying the funds to the member's estate for distribution in accordance with their will or intestacy laws. To avoid complications, it's wise to periodically review and update your binding nominations and will to reflect your current circumstances and preferences.
This blog contains general and factual information and does not take into account anyone's individual objectives, financial situation, needs or tax circumstances. We strongly recommend you contact one of our Advisers if you would like personal advice.
Redpoint Investment Holdings Pty Ltd (trading as CY Financial Advice), is a corporate authorised representative (No. 378099) of CY Financial Services (AFSL No. 509648)