Beneficiary nomination clarifies entitlement

Nominating beneficiaries provides guidance (or in some circumstances, direction) to a trustee (or other responsible person) charged with the task of paying a benefit arising from particular assets or instruments, as to how much and to whom those benefits should be distributed.

Three key areas where the nomination of beneficiaries is important, from a wealth management perspective at least, are:

  • life insurance policies;
  • superannuation accounts; and
  • Estate Planning.

Monitor the nomination of your beneficiaries

The key point of this article is to prompt the:

a)      making of appropriate beneficiary nomination(s) in relevant documents; and
b)      review of existing nomination(s) regularly.

The nomination of a beneficiary (or beneficiaries) made on a policy of life insurance is noted on the schedule to that policy: unless it is changed by the owner of that policy at any time after the original nomination, payment of the benefit under that policy – if it is still ‘in force’ at the relevant time – will be paid according to that nomination (regardless of any challenge made by others who may believe they should be the beneficiary). If the nominated beneficiary(ies) has died, the proceeds will be paid to their legal personal representative.
(This is an important issue to consider where there has been a marriage breakdown, or remarriage after the death of a spouse.)

If you have nominated specific beneficiaries under your Will, your Executor will manage your Estate for the benefit of those beneficiaries named by you. In this instance however, Courts may be asked to intervene and make allowance/ provision for other parties who believe they have an entitlement to share in the distribution from your estate. (To avoid this occurrence – or at least significantly minimise the risk of their success – we refer you to our Estate Planning service and related articles published in the Library on our website.)

The situation in respect of Superannuation is far more complex: there are three scenarios that need to be considered –

  1. No beneficiary nominated;
  2. Discretionary nomination of beneficiaries; or
  3. Binding nomination of beneficiaries.

With no beneficiary nomination, the trustees will most likely distribute the death benefits payable under your superannuation account to your legal personal representative (the Executor of your Estate) to deal with under the general provisions of your Will. The most obvious concern in this instance is that if you haven’t specifically nominated your Estate, the chances are that you won’t have drawn your Will in a way that makes due allowance for the death benefit that will flow. A different outcome results if you have died ‘intestate’ (that is, without having made a valid Will).

Where a discretionary nomination has been made the trustees are not ‘bound’ by this and will look to establish who are the eligible dependants that should benefit from your superannuation death benefit: and unless this has been very carefully considered, may result in a very different outcome in the treatment of your ‘estate’ than you contemplated when drafting your Will.

The most certain form of nomination is a binding death benefit nomination which is, as the name suggests, binding on the trustee subject to any ‘time’ limitations that may apply. [Note: in most retail (or public-offer) superannuation funds, binding death benefit nominations are only valid for three years – and need to be replaced/ renewed prior to each three-year anniversary: hence the earlier cautionary note to review your nominations regularly. Note further: Self-managed-superannuation fund deeds often allow binding nominations in perpetuity.]

How regularly should beneficiary nomination(s) be ‘reviewed’?

We suggest that the following guidelines for considering the need to review your beneficiary nomination(s):

  • At least every five years, unless
  • You have made a binding death benefit nomination on a ‘retail’ superannuation account (in which case it needs to be three years); or
  • Major life events occur, including –
  • Marriage/ partnering; additional children; or separation/ divorce (including termination of a relationship);
  • Significant inheritance;
  • Significant financial ‘event’ (including capital gain, insurance payout; or even bankruptcy); and
  • Death of a partner, dependant or other significant person in your wealth management plan.

There are many stories in the estate management and legal profession worlds about unanticipated consequences following the death of a person who had not paid adequate attention to these matters: stories such as

  • first wives being the beneficiary on life insurance taken out before divorce, leaving nothing for the subsequent partner, wife, dependants;
  • children receiving disproportionate superannuation benefits and leaving the spouse of the deceased with no financial support; and
  • most-recent partners being in charge of estates and not making appropriate determinations for the children of a former relationship, although intended that they benefit.

How can Continuum Financial Planners Pty Ltd help?

Nomination of appropriate beneficiaries in respect of particular wealth instruments/ accumulations is important; and regular review of these matters is no less important – these are both matters that are well within the purview of the experienced advisers at Continuum Financial Planners Pty Ltd who can provide helpful guidance and assistance: if you do not already include such reviews in the ongoing service package you have with your adviser, please call our office (on 07-34213456) or use the online contact us facility to make arrangements to meet with us, to ensure that your wishes in respect of the distribution of your wealth are appropriately recorded in all the right places.