Posted on September 11th, 2017 at 2:23 PM by WMIA
Superannuation is an area that is often forgotten or misunderstood in the estate planning process.
A super fund member cannot just sign a will and assume that their super benefits will automatically be paid in the way set out in their will. The super fund trustees are not bound by the deceased member’s will and may pay the benefits to either the deceased member’s estate or to appropriate dependants as they see fit.
In most cases problems will not arise. But problems can arise, for example, in same sex relationships, with “hidden” or multiple relationships, with “warring” children, and so on.
Moral and legal factors which may influence a super trustee’s discretion to pay a benefit to a person include:
There is a further general restriction, and this is the trustees can only pay the benefits to certain persons, being a person who is a “super dependant” of the deceased member. This means a person who is:
Clients can override the trustees’ discretion by signing a ‘binding death benefit nomination’ (BDBN).
A BDBN directs the trustee to pay the death benefits to a particular person. It allows the client to control the trustees’ discretion as to who gets the benefits on the client’s death. The trustee must pay the death benefit in accordance with the BDBN.
A BDBN may be used in conjunction with a so called “super will” to coordinate the payment of the deceased member’s super benefits with their other estate planning strategies.
A BDBN usually cannot be contested by an aggrieved person unless for some reason it is not valid. Possible reasons for a BDBN not being valid include:
What other issues impact the decision to pay benefits from a super fund?
The ongoing control of a SMSF will be held by the remaining individual trustees or the shareholders of a corporate trustee.
One common problem arises where only one of several children is a member and trustee of a SMSF. That child will control the SMSF on the death of both parents and may exercise his or her power as a trustee to the detriment of the other children.
Another common problem arises where the client wishes to leave their super benefits to a person such as a parent, sibling or a friend who is not a super dependant, as that term is defined. Such a person cannot receive a death benefit directly from the fund. One option is a binding death benefit nomination in favour of the estate, coupled with a will which specifically gives an amount equal to the super benefits to that person. Another option may be to leave non-super assets to that person and to only pay super benefits to dependants. Either way, the situation calls for intelligent and informed estate planning. Please do not hesitate to contact us if you or someone you know needs assistance in managing the connection between their super and their estate planning.