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Grab a cuppa and let us take you through the ins and outs to ensure your superannuation lands into the hands of those you desire.
Superannuation can be a major asset for many Australians. It is therefore essential that in preparing your Will and other end-of-life documents, that you take into consideration your superannuation.
As you are no doubt aware, there are a large variety of superannuation funds, each with their own rules which must be adhered to. Each retail fund, industry fund and Self-Managed Superannuation Funds (SMSF) generally will have its own Trust Deed and/or rules that must be adhered to.
When you die, your superannuation fund does not automatically form part of your estate. Did you catch that? Your superannuation does not automatically become a part of your estate. Furthermore, it may also be that your superannuation fund does not end up going to your preferred beneficiaries. This may come as a shock to you.
All Superannuation funds are held on trust and like all trusts, are not assets of your estate. This is why you need to take action and implement the right steps to attain your desired outcome.
You may think you can use your Will to direct the actions of a trustee of your superannuation fund. This is not the case. Most superannuation funds require you to nominate a beneficiary using the fund’s prescribed forms. This allows you to make either a binding or a non-binding death nomination. If you are not sure what is a binding or a non-binding death nomination (and the difference between them), keep on reading and we will explain them for you.
Binding Death Benefit Nominations
A binding death benefit nomination (BDBN) directs the Trustee of your superannuation fund about where you want your superannuation to go after you die. If you make a BDBN, the Trustee is obliged to follow the nomination, provided the beneficiary you nominate qualifies as a superannuation beneficiary, and, the Trustee considers the BDBN to be valid. A valid BDBN normally requires strict witnessing requirements and is required to be updated every 3 years.
Great care must be taken to ensure that the BDBN is carefully prepared and signed so that it fits within the superannuation fund’s Trust Deed and/or. This is particularly important in SMSFs where the preparation of inadequate BDBNs has resulted in significant failures and costly litigation in recent years.
If you have a SMSF, there are generally also issues relating to Trustee and Membership control which require careful and regular attention as part of any estate planning process.
Non-binding Death Benefit Nominations
If you make a non-binding death benefit nomination, the Trustee of your superannuation fund should take your wishes into account, but the Trustee is not legally obliged to follow them. The Trustee of the superannuation fund will have discretion as to where the proceeds of your superannuation are paid (based on your wishes, the needs of your dependants, the terms of the deed governing the superannuation fund and the law).
Obviously, the Trustee cannot pay your superannuation fund to just any person. However, if you have a made a non-binding death nomination, you should be aware that the Trustee may distribute your superannuation proceeds to a different beneficiary.
Who can receive my Superannuation after I die?
As above, only certain beneficiaries qualify as superannuation beneficiaries. According to the SIS Act, Superannuation beneficiaries must be paid to:
- your legal personal representative (ie. the executor); or
- a “dependant”
A “dependant” refers to your spouse (including a de-facto partner and/or a same sex partner), your child (of any age, including in certain circumstances a step-child) and those in an “interdependency” relationship with you. An “interdependency” relationship might include a situation where you have:
- a close personal relationship;
- you live together;
- one or more of you provide financial support to the other; and
- one or more of you provides the other with domestic support and personal care.
Even if your relationship does not satisfy all the above criteria, if one or more of you suffers from an intellectual, physical or psychiatric disability, a relationship of “interdependency” may still exist, so you should obtain further advice if you are considering this issue.
If you do not have any dependants, the trustee of your superannuation fund will direct those funds to your estate.
If the Trustee decides to pay your superannuation funds to your estate, and you do not have a Will, your estate affairs will be complex. As a result, your loved ones will most likely need to engage a Lawyer and your estate will likely incur higher legal fees – adding stress on family and friends during stages of grief, it can be rather unpleasant.
This highlights the importance of estate planning and why you should invest the time to seek legal advice to ensure your affairs are in order. Contact us via our website or call us on 08 9445 2686 if you have an enquiry and we will get back to you. We can discuss your situation and what legal services would be beneficial to you.