What is a beneficiary? Your questions answered
Your assets are the result of your hard work and careful financial planning. When you pass away, you want those assets to go to those who matter the most to you, which is why it can be important to have a Will in place with a list of beneficiaries, and to have nominated beneficiaries for your superannuation.
If you have any life insurance policies in place, you will want the payout to go the people of your choice, and nominating beneficiaries can make that possible.
When people talk about beneficiaries, they’re referring to the people or organisations that will receive their belongings and items once they have passed away.
Some of the more common items left to beneficiaries of a Will include money, real estate, cars, and other valuables, as well as stocks and bonds. Once a person dies, all their possessions, including any debts, come to be known as their estate.
Here’s what you should know about beneficiaries so you can ensure your worldly belongings will go to your desired recipients once you pass away.
What is a beneficiary?
A beneficiary is essentially someone you name to inherit what you leave behind in your Will, or it may be a person, company or trustee that is listed in a trust and is entitled to the trust income or capital.
Beneficiaries may also be listed in such items as a life insurance policy, in order for them to be provided funds if you were to pass away. They are the individuals or entities who will receive the lump sum payment of your policy, after you pass away.
Who can be a beneficiary?
Beneficiaries can be almost any person or entity of your choice – within reason and dependent on Australian law. This could mean family members, friends, charities or a combination of them all, including companies (set up as a trust beneficiary).
What are the types of beneficiaries in Australia?
Life insurance beneficiaries
For the purpose of life insurance policies, beneficiaries are not classified into different types. However, it can be important to list the people you wish to receive your insurance payout in the event of your death, otherwise any payout will become part of the estate.
At Guardian Insurance, you are given the opportunity to choose up to five beneficiaries. You can also decide what percentage of the payout amount you wish each of them to receive. And remember that you can change your beneficiaries any time you like.
For superannuation (which is not an estate asset so does not automatically get distributed according to your Will), there are a few different types of beneficiaries:
- Non-binding beneficiaries: These are people you nominate to receive your superannuation and any related insurance payouts, but it is not a legally binding nomination and only acts as a guide for your trustee.
- Binding beneficiaries: These are formal written directions and legally binding nominations that inform your trustee on who is to receive your superannuation benefit in the event of your death. These must be updated every three years.
- Non-lapsing binding death benefit: This is a legally binding nomination that advises your trustee on the beneficiaries you want your superannuation to go to. It does not have to be updated every three years, but you can amend it should you wish to change your beneficiaries.
Will beneficiaries are the people and organisations you leave your possessions to in your Will, which is also known as a leaving a bequest. People leave bequests to their family, friends, favourite charities, and some even create a trust to ensure their pets are taken care of in their absence.
For trusts, beneficiaries fall into two categories:
- Primary beneficiaries: Primary beneficiaries are also known as designated or specific beneficiaries. They are your first choice to receive your assets and are named in the trust deed.
- Secondary beneficiaries: Also known as general beneficiaries, they are determined by their relationship to the primary beneficiary. They can be their spouse, children, future children or grandchildren and are generally not named in the trust deed.
What are trustees?
A trustee is a person or company who holds the trust property for the benefit of the trust beneficiaries. They are responsible for managing the debts and obligations of the trust. This is a big responsibility as they must handle the trust property in accordance with the trust deed. People often choose their estate lawyer but can also appoint a family member or friend.
Can a trustee be a beneficiary?
According to the Australian Taxation Office, a trustee can also be a beneficiary on a trust, but they can’t be the only beneficiary, unless there is more than one trustee.
What is the difference between will and trust beneficiaries?
When it comes to Wills, beneficiaries are the individuals or entities who inherit your possessions after you pass away. However, in trusts, beneficiaries receive assets based on the rules of the trust, not your Will. It’s an important distinction that can get confusing if you aren’t familiar with the legal aspects. That’s why it’s a good idea to speak to an estate law expert if you are unsure about how Will and trust beneficiaries might be affected.
How do I pick a beneficiary?
The first step is understanding who valid beneficiaries are. For super purposes, these are:
- your spouse or partner,
- your children,
- other financial dependants, or
- your estate or legal personal representative.
Here are important factors to consider, when choosing a beneficiary:
- Be explicit: Clearly state who gets what and make sure their details are accurate in your documents.
- Stay updated: Major life changes, like getting married or having children, might affect your decisions down the track. Make it a habit to review your will every so often and update your beneficiaries accordingly.
- Think about taxes: Sometimes inheriting assets in a Will means paying taxes. Keep this in mind, especially with large bequests. You should seek professional advice regarding tax.
- Seek expert advice: Consider consulting legal experts to see that your choices are in line with Australian law and express your exact wishes.
- Choose wisely: Pick trustworthy people for a trust, as they will help ensure your wishes are honoured.
What happens if you don't name any beneficiaries?
If you don’t nominate any beneficiaries for your assets in a Will before you pass away, it is known as intestate. In this instance, your next of kin will have to apply for a Letter of Administration through the supreme court to give them the right on your behalf to take care of your estate, including distributing assets and settling debts. But how your estate gets distributed will follow the laws of intestacy, meaning the government decides who gets what. It is also important to note that this varies by state and territory.
In Australia, the laws of intestacy outline a predetermined order of who inherits your estate if you don’t have a will or haven’t appointed any beneficiaries. It generally starts with spouses or partners, then children, parents, siblings and so on. This process might not match up with your preferences or might leave out individuals or causes you wanted to receive a portion (or all of) the benefit.
For superannuation, if you don’t nominate beneficiaries, your super fund will abide by the relevant laws to decide who receives the balance of your super death benefit. This may be your spouse or one or more of your dependants. If you don’t have any dependants, the super benefit will be transferred to your estate.
For a life insurance policy, your named beneficiaries receive the lump sum payment. If no one is named as a beneficiary on your policy the payout will go to the estate to be distributed. That’s why it’s so important to name beneficiaries in your life insurance policy.
Considering life insurance to help safeguard your loved ones’ future? Request a quote online from Guardian Insurance and remember to nominate your beneficiaries when completing your application.
12 Feb 2024