A common mistake made when considering the distribution of your estate is assuming that your superannuation is automatically distributed per your Will. Interestingly, super does not typically form a part of your estate upon your passing.
So, what will happen to my superannuation if I die? How can I ensure that my superannuation is distributed in accordance with my wishes?
When you pass away your ‘death benefit’ includes all your superannuation and life insurance that you hold within in your superannuation. Disputes over who gets your death benefit are common and can cause significant stress for those you leave behind.
Superannuation Trust Deeds
All superannuation funds have Trust Deeds that will permit payment of your death benefit to classes of beneficiaries.
The Trustee of your super fund has the discretion to pay the benefit as per the Trust Deed. The Superannuation Trust Deed usually sets out the classes of people who can benefit from your death benefit, typically your immediate family or your dependents. The classes of people are usually classified in this order:
- Deceased’s spouse (or domestic partner); if no spouse or domestic partner then
- Children of the deceased; if no children then
- A person who was in an interdependency relationship with the deceased; if no relationship of interdependency then
- A person financially dependent on the deceased, and if no individual financially dependent on you; then
- The deceased’s estate in such proportions as the trustee determines.
However, the Trust Deed of every super fund does not necessarily allow payment to all the above categories. So, what can you do to ensure that your intended beneficiaries receive your death benefit?
Non-Binding Death Benefit Nomination
A non-binding death benefit nomination allows you to list your preferred beneficiary. However, as the name suggests, your super fund does not have to follow this document and can use it purely as a suggestion. Your super fund will have the final say as to who receives your death benefit and in what amounts.
For example, if you are in a same sex relationship and the super fund defines this relationship as one of ‘financial dependency’ rather than a domestic relationship your children (if any) may receive your superannuation instead of your desired partner.
This can also create unneeded stress in blended families if you would like your biological children to receive your death benefit, instead of your current domestic partner.
A non-binding death benefit nomination does not expire and will never need to be updated unless your circumstances and preferences change. However, it is not the safest option when it comes to ensuring that your superannuation is distributed as desired.
Binding Death Benefit Nomination (BDBN)
The best way to ensure that your wishes are followed is to create a binding death benefit nomination.
It is possible for you to nominate a recipient of your death benefit whilst removing the trustee’s power of discretion. BDBNs are binding on the super fund and ensure that your beneficiaries receive your death benefit in the proportions you desire.
It is also possible to list your estate in your BDBN so that your superannuation is distributed in accordance with your Will. Your estate is often referred to as your ‘Legal Personal Representative’.
A BDBN is not valid or in effect until the trustee of the super fund accept the documentation. A BDBN can also be lapsing or non-lapsing (meaning that it is possible that it will expire), depending on the super fund. A lapsing BDBN remains valid for three (3) years from the date it is signed and a non-lapsing BDBN will not expire unless it is amended or revoked.
If your BDBN nomination has expired or fails, then your superannuation will be distributed at the trustee’s discretion. Please ensure that when completing your BDBN that it is set out as per the super fund’s requirements.
Preparing the documents
If your superannuation is held in a Self-Managed Superannuation Fund (SMSF) (which is a fund usually set up by your accountant or financial planner containing typically just you and your partner as members), then we can assist to prepare a BDBN for you.
If your superannuation is held in an industry super fund or some other commercial super provider, then you should be able to download a BDBN from their website and complete it. We can also assist with this aspect, if you like.
If you would like to discuss your Will and the interesting pros and cons of keeping your estate and your super separate or together (such as taxation mitigation and asset protection), we have an experienced team of lawyers who can provide you with advice and assist you with your estate planning.
Please call our Drouin or Warragul offices to make an appointment or book a telephone appointment online. We would be pleased to discuss your specific circumstances with you and provide you with some peace of mind.
Authors:
Emily Farr – Lawyer
Tessa Hoogerbrugge – Partner
Disclaimer: The information in this post is general in nature. This does not constitute legal advice and should not be relied on as such. Please contact one of our Lawyers if you are seeking advice about a specific legal matter.
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