Superannuation

Superannuation

Superannuation needs to be considered separately but together with the Will. A common estate-planning mistake is to assume that a clause in a Will saying “I give all my assets to my children” automatically controls the deceased’s superannuation.

In most cases it does not.

The fundamental rule

In Australia, superannuation does not automatically form part of a deceased person's estate. The super fund trustee holds the member's superannuation and, following death, must deal with the death benefit under superannuation law, the fund's governing rules and any valid death-benefit nomination.

 

1. Who can receive superannuation?

Superannuation law restricts who can receive a superannuation death benefit directly.

Broadly, the fund can pay the benefit to the member's legal personal representative (the estate) or one or more qualifying dependants. Regulation 6.22 of the Superannuation Industry (Supervision) Regulations 1994 provides the legislative framework.

Eligible beneficiaries generally include:

• a spouse or partner;
• a child of any age;
• someone financially dependent upon the member;
• someone in an interdependency relationship with the member; or
• the member's legal personal representative, meaning the estate in this context. 

This produces an important distinction: being entitled under a Will does not necessarily mean that person can be nominated to receive super directly.

2. Binding death benefit nominations

When preparing a Will, I would regard checking the client's Binding Death Benefit Nomination (BDBN) as an essential part of the estate-planning process.

A valid binding nomination generally requires the trustee to pay the death benefit according to the nomination. A non-binding nomination expresses the member's wishes but leaves the ultimate decision with the trustee.

Depending upon the fund, there may be:

• lapsing binding nominations;
• non-lapsing binding nominations;
• non-binding nominations; and
• reversionary nominations associated with pension accounts. 

A lapsing BDBN commonly expires after three years, although the precise rules of the particular fund need to be checked.

Consequently, merely asking a client, "Have you nominated a beneficiary?" is not enough.

You should establish what type of nomination it is, who has been nominated, whether it remains valid, and whether it is consistent with the Will.

3. Nominating the estate versus an individual

This is one of the most important estate-planning decisions.