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March 31, 2015
Superannuation and Your Estate

By Aaron Kitson

Often a person’s superannuation fund equates to a large sum of money comprised of member contributions and policy benefits (such as death benefits).

Death benefits and superannuation funds do not however by law form part of a deceased’s estate nor are they automatically distributed according to a deceased person’s Will.

So, who is able to receive the superannuation benefit when a member dies?

Generally, it is up to the trustee of the superannuation fund to determine who a deceased member’s benefits should be paid to. Usually, death benefits are only paid from a superannuation fund to:

A deceased member’s spouse (including de facto)

A deceased member’s child or children (of any age and may include adopted, step children and ex-nuptial children);

A person who was in an interdependency relationship with the deceased member (including relationships such as same sex relationships);

A person who was financially dependent on the deceased member; or,

The deceased’s estate if none of the above apply.

When a deceased has validly nominated a preferred beneficiary before his or her death the trustee may consider the nomination but is not bound by such nomination unless the nomination is a binding nomination (as explained later).

When is Superannuation paid to the estate?

Superannuation benefits can only be paid to the estate of a deceased member when:

The superannuation funds trust deed states that payments on death may go to the estate although this is uncommon.

The trust deed gives the superannuation fund trustee discretion concerning the payment of the death benefit and the trustee decides to pay the benefit to the estate.If a member dies leaving no dependents then the fund trustee may have no choice but to exercise their discretion and pay the death benefit to the legal personal representative of the deceased’s estate (if any).

The fund allows the member to make a binding nomination and a member had validly nominated his or her estate.

Binding Nominations

All superannuation funds differ to one degree or another, but most trustees of superannuation funds provide members with a nomination form to allow them to nominate their preferred beneficiary.

It is important to remember that there are two types of nominations commonly available:

Non-binding nominations – upon a member’s death, the superannuation fund trustee may take into consideration the deceased member’s valid non-binding nomination when deciding how to distribute the deceased member’s death benefit.

Binding nominations – if a member is able to make and has made a valid binding nomination then the trustee is bound by that deceased member’s binding nomination concerning the distribution of the deceased member’s death benefit.

While binding nominations can provide certainty, they can also produce results that are unfair or undesirable from a deceased’s point of view particularly if they are not up to date.

It is therefore important to ensure that your binding nominations are up to date and that they are periodically renewed in accordance with the superannuation fund’s requirements.

Updating nomination forms is particularly important if the member experiences a change in circumstances such as a divorce or break down of a de facto or other relationship or if the member has a child.

Is a provision in a Will about the distribution of superannuation therefore to be ignored?

Provision is a Will about the distribution of superannuation should not be ignored.

Member’s wishes are relevant but not determinative for a superannuation fund trustee when deciding how to divide up a superannuation death benefit.

On drafting a Will it is necessary to consider how the testator wishes for their superannuation to be dealt with as the fund trustee might exercise its discretion to pay the death benefit to the estate.

Things to remember

When drafting a Will a testator should remember the following things:-

Superannuation death benefits do not automatically form part of the estate although a provision within a Will can be of assistance by indicating that members wishes. Such wish is relevant but not determinative.

A superannuation fund trustee might exercise its discretion to pay the death benefit to the estate even though it would not generally be bound to do so.

Members should ensure that their binding nominations remain valid and up to date by regularly reviewing their nomination forms. This also applies to non-binding nominations.

To update nomination forms when a change in circumstances occurs.

Please contact Aaron Kitson of LBH by email akitson@lbandh.com.au