Superannuation is not automatically covered by your Will
Superannuation Beneficiary Estate Planning
For many of us, superannuation is one of our biggest assets. It may even be worth more than the family home. But did you know that your superannuation death benefits are not automatically covered by the terms of your Will and that if you pass away your superannuation may not be paid to the people that you intend?
Your superannuation is governed by the terms of the trust deed that established the super fund, and by legislation. Australian superfunds have their own requirements that must be followed in order for them to be bound to pay a super death benefit in accordance with your wishes. If the correct documentation is not in place, it is usual for the Trustee of the superfund to make a decision on who will receive your super death benefit. The same is true of your self managed super fund.
Putting the right documents in place for your Super
It is not as simple as downloading a binding death benefit nomination form from your super fund and filling it in. The death benefit nomination must align with other aspects of your estate plan, particularly your Will. Also, many Super funds provide that their death benefit nominations lapse every 3 years and cannot be renewed if you have lost capacity. Having ‘back up’ measures in your other estate planning documents to cater for this scenario is prudent.
Is there a tax on my super death benefit?
There could well be a tax on your super death benefit – it depends on who the beneficiary is. You must consider the tax implications of your superannuation passing to certain beneficiaries (such as independent adult children) and whether there are more tax effective alternatives that may be available to you. We are able to provide you with advice on how to potentially save this death benefit tax as part of your overall estate plan.
A comprehensive estate plan
You need an estate plan, which covers your Will, superannuation and other assets not governed by your Will. We can also ensure that comprehensive financial terms are included in your Enduring Power of Attorney document so that your attorneys can appropriately deal with your superannuation interests if you lose capacity due to accident or illness (for example, withdrawing super, renewing your death benefit nomination when it lapses, and so on).
At Estate First Lawyers, we specialise in superannuation estate planning (including self managed super funds) and will advise you on your best options. We will also provide you with a fixed fee quote at your first consultation.
Superannuation death benefit nomination
For most retail superannuation funds, unless you have a death benefit nomination, it is up to the super fund trustee to decide how your super is to be distributed amongst your eligible superannuation beneficiaries once you have passed. This comes as a big shock to most of our clients. In addition, some of our clients try to nominate people who are not eligible beneficiaries (for instance, nominating your parent or sibling who is not financially dependent and not in an interdependent relationship with you). Therefore it is quite important to specifically consider your superannuation as part of your estate planning.
With the help of an estate lawyer, you can make either a binding or non-binding nomination. A binding nomination specifies which superannuation beneficiary you direct your super to, but such a nomination often lapses every three years. A non-binding nomination is only persuasive to your super fund trustee, but it often does not lapse.
Is it possible to arrange for superannuation death benefits to be paid to your estate?
If you do not have a partner and you are without any children, you may wish to benefit a sibling, a parent, a close friend or even a charity instead. In such a case, you could nominate your estate as the beneficiary of your superannuation death benefit in a valid Will.
Superannuation death benefits may be paid to the estate directly or assigned to the deceased member’s legal personal representative or executor of the estate. It is crucial that you not only nominate your estate as your superannuation beneficiary but also ensure your will reflects the same wishes and intentions. You can then specifically provide for these superannuation proceeds within your Will.
What is the difference between a binding and non-binding nomination?
In a binding nomination, you are directing the superannuation fund trustee to pay your superannuation death benefits to your nominated beneficiaries. This means the super fund trustee will have to pay the death benefit to whichever dependant is named in your nomination. However, note that most superfunds require members with a binding nomination to renew this document every three years for it to remain valid.
Meanwhile, a non-binding nomination tells the superannuation fund trustee of your wishes. Although the trustee is not obligated to follow your wishes, they can take your non-binding nomination into consideration in the disposition of your superannuation death benefits. The trustee may consider the financial circumstances and needs of your dependants.
There are some special legal requirements in drawing up superannuation benefit documents during superannuation estate planning. Therefore, it will be in your best interest to speak with your estate lawyer to get the information you need.
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Frequently Asked Questions
Why is superannuation an important part of your estate planning?
Implementing estate planning measures for your superannuation entitlements is necessary because your superannuation does not automatically fall under your Will. Therefore, you need to put in place additional documentation to ensure that your superannuation death benefits are dealt with in the manner that you intend after your death. If you do not turn your mind to it, then you will not have any certainty regarding who your superannuation death benefits will be paid to if you pass away, and your superannuation is likely to be a significant part of your wealth.
Your superannuation entitlements may also be exposed to someone making a claim against them after your death if you pass away without any valid estate planning measures in place. This often results in expensive and time-consuming litigation and a lot of this heartache can be avoided with comprehensive estate planning solutions.
What happens to my super when I die?
When you die, your superannuation benefits are not automatically covered by the terms of your Will. The Trustee of your particular super fund will usually have the ability to decide who your superannuation death benefits are paid to and in what proportions after your death, which may not be to the people who you would have intended.
For example, if you have super with Australian Super, and your Australian Super binding death benefit nomination lapses after 3 years and then you die, the Trustees of the fund may decide to pay your superannuation entitlements to an estranged child, or to your new spouse rather than to your children from your previous marriage as you intend. Your superannuation entitlements could also potentially be paid to your estate where they will then be exposed to any claim that may be brought against your estate after your death.
Depending on the governing rules of your fund, you may be able to prepare a document known as a Binding Death Benefit Nomination (BDBN) or Reversionary Pension Nomination (RPN) which allows you to specify who you want your superannuation to be paid to after your death. They are important estate planning documents and should be considered in line with your overall estate planning intentions.
What is a Binding Death Benefit Nomination (BDBN) or Reversionary Pension Nomination (RPN)?
A Binding Death Benefit Nomination (BDBN) is a document that allows you to nominate who will receive your superannuation death benefit when you pass away. The Trustees of the super fund will be bound to follow the terms of the death benefit nomination, provided it has been validly implemented in accordance with the particular fund’s requirements and legislation. A binding super death benefit nomination is an important estate planning document and should be considered in line with your overall estate planning intentions. It should never be looked at in isolation.
A Reversionary Pension Nomination (RPN) is a document that you can prepare which directs the Trustees of your super fund to pay the super pension you are receiving to another nominated person upon your death. It is important to be aware that not everyone is eligible to receive your super death benefit as an ongoing pension after your death. For example, a spouse can be a reversionary pension recipient, but an independent adult child cannot.
Can my super go to anyone when I die?
No, not directly. Your Australian superannuation can only be paid to certain classes of beneficiaries. These are set out in legislation and can be narrowed further by the rules of each particular super fund’s trust deed, but generally include your surviving spouse, your children (of any age), your stepchildren (only if their biological parent is still living), someone that is financially dependant on you for support or with whom you are in an interdependency relationship. Superannuation can also be paid to your Legal Personal Representative (i.e. your estate) where it will then be distributed to the beneficiaries in accordance with the terms of your Will.
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