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 terrible accident, a young girl got 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 you think?
Was it the right decision to give the money to the rich guy and forget about the poor struggling mother
although she was listed as a beneficiary on superannuation policy?
Please let me know your thoughts in the comments below the video, I am extremely curious.
My name is Katherine Isbrandt, I am a CFP and you are watching About Retirement TV,
the place to find out all you need to know to be well prepared financially for your retirement or to improve your retirement if you are already there,
and that includes assets security, that we are discussing today.
“Retirement is a journey NOT a destination, but you better be prepared for that ride.”
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 was 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. So I will read it for you, the law says,
for the purposes of who can receive a super death benefit payment, you are a dependent of the deceased person if at the time of their death you were;
the spouse or the factor spouse,
a child of the deceased of any age, a person in an interdependency relationship with a deceased.
An interdependency relationship exists between two people, if they have a close personal relationship, they live together,
one of 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 could make in your super.
Number one, Discretionary Death Nomination.
Well, any nomination is better than no nomination, at least you give the trustee indication of your wishes.
A general nomination is so-called Discretionary Nomination because you are giving a discretion to the superannuation trustee to make the final decision,
So it is really up to super trustee to decide.
Super fund can override your nomination if they believe it is not according with superannuation law,
or it is not providing the benefit to the beneficiary that they believe should benefit first.
A better type of nomination is a Binding Death Nomination.
This is the type of death nomination, that is binding on your super trustee.
As long as your nomination is according with superannuation law,
a trustee has to follow this nomination and and cannot override it.
Be aware that a binding nomination might be valid only for a period of 2 or 3 years. If you do not renew it, your super will have no nomination at all.
Fortunately most super funds do send letters to members to remind them to renew their death nomination,
unfortunately, a lot of people sort of don't pay attention to those letters and let the nomination lapse
which might be a problem for their beneficiaries.
And the third type of nomination is, Non-lapsing Binding Nomination,
this is again a nomination binding on a trustee to do as instructed as long as
the beneficiaries that you listed are acceptable by superannuation law.
As the name suggests it is non-lapsing and this is great news for a lot of beneficiaries,
because it does provide a lot of security knowing that the superannuation money will be distributed as instructed.
The problem, however, can appear if you break up with your partner and you forget to change your nomination.
As you can see there are pros and cons for every situation.
So now that you know who can be a beneficiary of the superannuation policy and how the nomination should be made,
can you see why the super fund could not have paid that money to the mother.
Even if we believe it was immoral, not fair, or maybe even cruel but it was JUST.
Because the decision followed the superannuation law.
And for example, imagine the same situation, but the mother was the rich lady
and the partner was a poor bloke that just got lucky with the young girl,
would you still believe that 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 superannuation law.
So listing a mother as a death beneficiary in a super fund 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).
And at that point the super benefit would have been paid out to the estate and distributed accordingly with the girl's Will.
Providing of course she had one.
As long as the mother was listed as a beneficiary in her Will, the mother 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, but 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, very seriously
to avoid those costly court cases, when the intended beneficiaries have to fight for their right to inheritance.
And as you can see by the example of a young girl it is not age related at all.
Estate Planning, Wills, all legal documents are necessary part of your planning regardless of your age.
So if you want to make sure you are doing the right thing by your beneficiaries
that all your super benefits and all the 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,
than for your beneficiaries or your estate to pay for their lawyer and have a long fight in courts, not to mention the emotional drama
people have to go through during this dramatic time, with no guarantee of the outcome.
So have you enjoyed this video, a bit different, but I thought I would introduce this case to you.
If you would like to read the actual story it was printed in The Age on 21st June 2021.
I will leave a link to the article below my video in case you want to read it.
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And now I would like to invite you to watch my special video collection:
"All you need to know about Superannuation"
Rules of money in - money out and all super related issues in between.
The second collection is about actual Retirement
Income Streams, Age Pension and different smart ways to improve it all.
See you in my next video.