In this Part 1, we take a general look into superannuation death benefits and estate planning. In Part 2, we will look at the application of those issues in practice, and the potential consequences of getting it wrong.
Throughout our daily lives, superannuation is generally going to one of the last considerations on our minds. Between home life, a social life, work commitments, relationships, parenting, and all the rest, it's completely understandable. That being said, it can often form one of the most substantial assets that you will accumulate during your lifetime, and with the only 2 certainties in life being death and taxes, it's probably important that you have implemented some sort of arrangement for your superannuation death benefits in the event of your death.
We take this opportunity below to explain what directions can you give about your superannuation death benefits.
General Property & Your Will
General ownership of most assets is fairly straightforward - you buy a house, you are on the title deed; you buy some shares, they're registered in your name; your wages and salary are paid to you, deposited into your bank account. In each of those examples, you own the asset directly (for current purposes, we are ignoring joint ownership), meaning you can generally do what you want with the asset - you can sell the house, or transfer the shares, or withdraw your savings from the bank, and if you were to die, your will could direct who receives your assets.
Superannuation
As you may have guessed, superannuation is different to most other assets. You do not technically 'own' your superannuation investments, which are made by the superannuation fund itself. Rather, you have a right (when you satisfy certain criteria, i.e. retirement) to be paid the balance of your contributions and investments. And so because you don't directly 'own' those superannuation investments, you do not have the ability to gift it directly by your will. Of course, you are still able to deal with your superannuation, it's just a little different.
Superannuation Death Benefits & Nominations
Under superannuation legislation, your superannuation death benefits can only be paid to certain eligible categories of people, being any one or more of the following:
The deceased's spouse (including de facto spouse);
Any child of the deceased;
A person in an interdependency relationship with the deceased;
An interdependency relationship is defined as a close personal relationship between two people who live together, where one or both provides for the financial, domestic and personal support of the other.
The deceased's legal personal representative (i.e. their estate).
If you have not given any directions to your superannuation fund, then the trustee of the superannuation fund may use their discretion to pay your superannuation to any eligible person(s). Alternatively, if you're prepared then you would make a nomination, directing your superannuation trustee how you want your superannuation to be distributed - but even then, there are different options and consequences. In summary, the following list identifies the different types of superannuation death benefit nominations you can give to your super fund:
Non-Binding Superannuation Death Benefit Nomination
This is a direction telling your superannuation fund how you want your superannuation distributed between eligible person(s). However, because it is not binding, this means that the superannuation trustee can override your wishes and could decide to pay your superannuation in a manner differing to what you wanted.
Binding Superannuation Death Benefit Nomination
This is a direction telling your superannuation fund how they must distribute your superannuation death benefits. So long as it is valid, then the superannuation fund must pay your superannuation to eligible person(s) as directed.
Ordinarily, a Binding Superannuation Death Benefit Nomination lapses after 3 years from the date it was made (though some superannuation funds are able to get around this issue, enabling their members to make non-lapsing binding death benefit nominations.
Practical Consequences
If you want to ensure your superannuation is paid where you want it to be, then it is important to get advice to ensure that you are implementing an estate plan that will facilitate your intentions. This includes considering who you intend your superannuation to be paid to (and whether they are an eligible person under superannuation law), and how you implement your directions (non-binding or binding [which may then lapse after 3 years, or may last indefinitely]). Getting it wrong could have significant and unintended consequences, so it is best to get quality advice and ensure your intentions are implemented in a binding and effective manner.
Ashton Estate Lawyers regularly assists estate planning clients not only with preparation of wills and enduring powers of attorney, but also advising and implementing suitable superannuation death benefit nominations. Please contact us today for a free 15-minute telephone conversation and see how we can assist you with your estate planning and superannuation matters.
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