Why a will is not enough to manage your super in the event of death

A discussion around what will happen in the event of one’s death is not the uplifting and inspiring topic people walk through our doors seeking advice on, however it is a prudent and essential discussion that needs to be addressed. Because not having these affairs in order can lead to significant financial distress.

What happens to a loved one’s super in the event of death

In the event of death, a deceased superannuation account is payable in accordance with superannuation laws. This means the benefit is not lost, it is simply paid in accordance with the law. But it’s not always that simple.

A common misconception about estate planning and superannuation is: “I have a will. It will deal with my superannuation when I die”. Most people are surprised to learn that their will does not necessarily determine how their superannuation is managed or distributed after their death. In other words, your will does not automatically control what happens to your super in the event of death.

The tricky part here is in some instances it can. If you complete a nomination of beneficiary form leaving it to your estate then the trustees consider your will, and if no one else claims via super trustee, they typically pay to the estate.

However…..even with lodging a valid nomination of beneficiary form, in most cases, the trustee will hold full discretion as to who to distribute benefits to in the event of death. This can in some instances result in superannuation death benefits being distributed to interested parties that may conflict with the deceased’s wishes.

Why a will is not enough

Superannuation is held on a member’s behalf in trust. And although the member is a beneficiary of the trust, in the event of death, it is the trustee of the superannuation fund who holds ultimate control and responsibility for ensuring the funds are paid in accordance with the law. This is exactly why a will is not enough. It may not matter what you have in your will – it’s how the trustee views the distribution of your assets that counts most.

There are ways to help guide the trustee towards the desired distribution of funds but each super fund may have their own processes. And even being prepared for these processes won’t always ensure a quick resolution.

What does the super fund trustee consider?

As superannuation is an asset that is held in trust on behalf of the member, the trustee upon receiving notification of the death of a member, must then determine who to pay the benefit to and in which format, i.e. a lump sum payment, or in the form of a pension, or a combination of the two. This matter can be complex and can take time before the eventual recipients receive the proceeds.

The trustee will also generally seek a large amount of information relating to the deceased, such as death certificates, Certified ID, Bank Account Information, Copy of the will and possibly probate.

Navigating these requirements during a time of grief can add significant stress to what is already a very difficult time. And making it worse, none of this happens quickly. It may take several months even for a straight forward case.

And what about my spouse’s pension – what happens to that when they pass away?

When a superannuation holder retires, it is common for their superannuation to commence a pension account, where by a regular amount is withdrawn each fortnight or month and paid to the recipient to assist with funding their retirement income. At this stage, the superannuation account holder may specify to their fund that they wish to have their pension continue to be paid to a spouse in the event of their death.

This is commonly known as a reversionary pension, where when one member of a couple passes away, their superannuation pension will simply continue in their spouse’s name and generally on the same terms.

However, even where we hold a reversionary pension, upon death of the original account holder, the pension will in fact cease to be paid to the spouse temporarily. This is due to the need for the trustee of the superannuation fund to undertake the relevant duties as per all superannuation trustees, as if they were paying a death benefit.

It can take months for a spouse’s pension to be paid to you, so what happens to your cash flow?

The trap here is that it can often result in a widow either suffering reduced income or in some cases, being cut off from income for a period until the trustee is satisfied, settles the death benefit, and then recommences pension payments. This can take months and whilst some strategies can be adopted to work around this, in some instances, people are cut off from income at a time that is highly stressful and emotive.

What can we do today to try to minimise interruptions in distributing superannuation death benefits?

While it is difficult to cover all bases, it is possible to plan and try to minimise the impact of any delays on loved ones. It is always best to address these issues whilst alive and fit and healthy, so that we can align with your wishes, understand the potential issues, and help ensure a smooth transition and distribution of superannuation assets. This is forms an important part of our financial advice process.

Have I left it too late?

Unfortunately for some, they never quite get around to addressing this whilst they are fit and healthy, and unfortunately it is left to surviving family to navigate. This is often a long and drawn out process that can often be outsourced to a financial adviser to help streamline and expediate the process.

We can help by managing the process and liaising with the superannuation provider to ensure that all the correct documentation is gathered initially and submitted to the provider in a prompt timeframe. Furthermore, we can also assist with following up and dealing with superannuation funds to ensure assessment is progressing, and that the correct forms and paperwork are submitted to the trustee in order to reduce the likelihood of missing information or incorrect documentation being submitted.

Should this be the situation you find yourself in, please don’t feel alone in this – we can help. Just reach out and call us and we can talk you through how we can help. Every superannuation provider is different and will have different requirements and processes, we can help navigate this on your behalf to allow you to focus on you and your grieving process.

We can help provide advice and solutions to help meet your objectives and needs. Feel free to contact us to discuss your needs and objectives – we would love to hear from you to see if we can assist you further.