Death and money are tough topics to think about. It's why many of us haven't planned for who will receive our superannuation when we die.
"So many people don't want to think about their own mortality," says estate planning lawyer Melisa Sloan, based in Melbourne/Naarm.
There are also a lot of misconceptions around nominating a beneficiary for our superannuation, explains Ms Sloan.
And for single people without kids, there is an added layer of complexity.
New research shows at least 6.5 million Australians will not have a say in who inherits their superannuation because of the way super members are prompted to inform funds of who they wish to receive their savings after their death.
While this news has highlighted the importance of understanding the difference between making a "non-binding" or "binding" nomination, knowing who you can leave your super to — and how — is also critical.
For people who are not married or in a de facto relationship, and don't have children, choosing someone such as a parent or sibling isn't straightforward, as they most often don't meet the criteria for a binding nomination.
"Being empowered with the knowledge of who you can leave super to, and the tax implications, can make a significant financial difference of how super will be paid to beneficiaries," says Ms Sloan.
What is a super beneficiary and who can you nominate?
A superannuation beneficiary nomination is a formal way to tell your super fund who you want to receive your super death benefit when you die.
Natasha Janssens, a financial educator and behavioural money coach, says many people mistakenly believe you can nominate anyone to inherit your super.
But a beneficiary can be a spouse, children, someone who is in an interdependency relationship with you, someone who is financially dependent on you, or your estate or legal representative.
You have the option of making a "non-binding" nomination — a quick process that can often be completed online — or a "binding" nomination, which is a more complex process.
Ms Janssens says a binding nomination must be followed by the trustee of your super fund, providing it's a valid nomination (properly signed and naming a valid beneficiary).
"A non-binding nomination does not have to be followed — it is merely a statement of your preferences, but the ultimate decision resides with the trustee of your super fund."
More than a third of Australians surveyed by Super Consumers Australia had no death benefit nomination registered with their super fund — and a further 25 per cent did not know if their nomination was binding.
Ms Sloane says another common assumption is that super forms part of a will, but super is not an asset of someone's estate.
"It's alarming the amount of people who don't know that."
Your options when you have no spouse or dependants
If you want to leave super to someone such as a parent, friend, or sibling, you'll need to complete a beneficiary nomination and appoint your legal personal representative, Ms Janssens explains.
"The situation may be different for an 18-year-old living at home who may have an interdependency relationship with her parents, and so could nominate her parents as beneficiaries for super.
"On the other hand, a woman living independently wouldn't be able to nominate her parents and as such would have to nominate her estate if she wished for her parents or a sibling or friend to receive the super."
Ms Sloane says when someone nominates a legal personal representative (executor of their estate), the money will be paid to them and they can distribute the money in accordance with the will.
You will need to have a will in place to achieve this.
"It's a roundabout way to get it to them," Ms Sloane says.
Our experts say people without a spouse or dependents should seek legal advice before making a nomination and deciding whether it's best to make a binding nomination for a specific person or handle it through the estate.
"There are numerous considerations to be made here including tax implications as well as risks of challenges to the estate should your super be handled in that manner," Ms Janssens says.
Revisit to reflect changes to your relationship status
Ms Janssens says people should make sure nominations are up to date when their relationship status changes.
"[People] often don't consider how changes in their relationship status could impact their super," she says.
"Perhaps a single woman in a de facto relationship would want the super to go to her parents instead of the new partner.
"Or perhaps you nominate your spouse but are in the process of a separation, meaning your wishes might have changed, yet the paperwork doesn't reflect that."
This article contains general information only. You should consider obtaining independent professional advice in relation to your particular circumstances.
