Do you know the answer to this question? A large number of people don’t, even though it is essential to know the answer in the context of your overall deceased estate planning. If you have worked in Australia you should have a superannuation account, in which case the below article is relevant to you.
Most people assume that their superannuation benefits form part of their estate and thus can be bequeathed in their will. However, this is often not actually the case! Because your superannuation is not strictly owned by you (it is held in trust for you under the terms of a trust deed – which most people never hear about or see!) it does not automatically form part of your estate on your death. This means that when you pass away, the trustee of the relevant superannuation fund has a discretion as to whom to pay the death benefit, subject to the terms of the trust deed and the relevant superannuation legislation. Thus, someone other than you may have a say in how your superannuation death benefits are dealt with.
So how does the superannuation trustee make a decision? Well, every superannuation fund has its own Trust Deed. This Deed specifies how the trustee must handle the death benefit in the event of your death and sets out rules as to their decision-making process. The Trust Deed must also be in accordance with the relevant superannuation law. Some superannuation funds may pay into your estate (i.e., to your legal personal representative), so it is of utmost importance that you have a legally valid will in place. If you don’t, your superannuation death benefits will still form part of your estate but your estate will devolve according to the law on intestacy, which may not accord with your wishes.
But the Trustee of the fund may not direct your funds be paid into your estate. In that case, upon your death your funds could be paid to any of a select group of persons who are eligible recipients under superannuation law, including your spouse, children, the executor or administrator of your estate, any person financially dependent on you and any person with whom you have an interdependency relationship.
Some Trust Deeds also allow for Binding Death Benefit Nominations. If you have one in place, the Trustee is bound by your nomination. However, it is important to note that there are limits to who you can nominate and it must be renewed every 3 years. If it is not, it will lapse and no longer be binding on the Trustee.
If you have a Binding Death Benefit Nomination in place, it is also important to update it if your circumstances change, such as a relationship breaks down, otherwise your superannuation funds could end up going to someone you are no longer on good terms with.
Also, a child who is financially dependant at the time may no longer be so at the date of your death, thus becoming liable for 15% tax on the amount received.
It is also important to note that there is a difference between Binding Death Benefit Nominations and non-binding death benefit nominations. A non-binding death benefit nomination will be considered by the Trustee, but will not be binding on his final decision. The Trustee will still determine what is the best distribution of the funds at the particular time. They may also take into consideration the tax implications in reaching their decision.
If you have no nominations at all the Trustee has, subject to the law at the time, complete discretion once you have passed away. This could cause a lot of problems, particularly if you have competing beneficiaries!
If you are receiving a pension from your fund you may also be able to nominate reversionary beneficiaries, meaning that after your death your nominated beneficiaries will continue to receive your pension.
So what is the next step, you ask.
Firstly, you should contact your superannuation fund/financial adviser to find out what the Trust Deed provides.
You should also confirm that the fund allows Binding Death Benefit Nominations.
It is also important to consider any taxation implications arising from the payment to a beneficiary. Lump sum benefits paid on your death to your spouse, minor children and other eligible dependants are tax free. Lump sum payments paid on your death to others, such as a non-dependant adult children, will be taxed up to a maximum 31.5%.
Then you should see a lawyer to prepare a will to take all this information into account. This is especially important because often the superannuation payments made consequent upon death are a very significant portion of the deceased person’s estate and getting it right is thus all the more important.
For comprehensive estate planning advice, do not hesitate to contact Friedman Lurie Singh & D’Angelo lawyers in Perth on 9254 0000.