Attwood Marshall Lawyers Wills & Estates Lawyer, Xara Coassin, recently joined Robyn Hyland on Radio 4CRB to discuss how people can ensure their superannuation assets pass on to their loved ones after they are gone, and how a binding death benefit nomination isn’t worth the paper it is written on if you do not sign it properly.
Many people hold a significant amount of wealth in their superannuation, but not everyone understands how to ensure that money passes to their loved ones after they are gone. There are different assumptions people make about their superannuation; from thinking it can be gifted to a beneficiary via a Will, to assuming family can automatically access these benefits after you are gone.
Technically, you do not own your superannuation, and these benefits and any insurance policies attached to your superannuation, such as Life Insurance (death benefits) fall outside of your estate.
Superannuation assets are held by the superannuation trustee on trust for the member or members.
Superannuation will be paid to one or more of the deceased’s dependents at the trustee’s discretion, in accordance with applicable legislation and any current nominations the deceased has made.
It is important to understand why superannuation benefits do not automatically form part of a deceased person’s estate, and what you can do to ensure who you want to benefit from this valuable asset, ultimately will receive that bequest. There are estate planning tools that can be used to instruct a superannuation trustee to fulfil your wishes.
Being proactive and planning for what will happen to superannuation
Unfortunately, it is not uncommon for people to forget about their superannuation when considering their estate plan and writing a Will.
It’s not just the superannuation contributions that will form someone’s overall benefits, but in most instances, people have substantial insurance policies attached to their superannuation that they may be unaware of.
According to ASFA, the average superannuation account balance for each age group looks something like this:
- 40–44-year-old males $121,119 and females $92,680
- 45–49-year-old males $165,587 and females $112,228
- 50–54-year-old males $214,795 and females $157,124
- 55–59-year-old males $286,283 and females $209,653
- 60–64-year-old males $359,870 and females $289,179
- 65–69-year-old males $414,380 and females $370,042
- 70–74-year-old males $464,565 and females $403,268
- 70-year-old (plus) males $436,370 and females $380,386
These are balances alone that do not consider insurance policy benefits that can be payable upon someone’s death. With the average basic level of death cover ranging from $200,000 to up to $500,00 or more, this can quickly boost a superannuation asset to the $ 1 million mark, and beyond.
How this asset will pass on to an intended beneficiary should be carefully examined as part of the estate planning process and reflect a person’s individual circumstances.
Although superannuation is considered a “non-estate asset”, it is important that any Binding Death Benefit Nominations (BDBN) that you have in place align with your Will and has been executed properly.
Binding Death Benefit Nominations – instructing the super trustee on what to do
Binding Death Benefit Nominations are a useful estate planning tool to deal with the assets in your super on your death. By executing a Binding Death Benefit Nomination, you are able to instruct the trustee who to pay the benefits to, which takes away the possibility of the assets being shared or paid to someone else (e.g. a former spouse or children you don’t want to provide for). It is important to note that under Superannuation Law, super can only be paid to a certain class of beneficiaries, such as a spouse, ex-spouse, children, dependents, or a legal personal representative.
If someone nominates a beneficiary who does not fit within the allowable classes, the Binding Death Benefit Nomination will be deemed invalid. This means discretion will revert back to the trustee of the super fund to determine who should receive the benefits.
In the absence of a Binding Death Benefit Nomination, the trustee of the superfund retains its discretion as to who to pay your super to and the deceased’s loved ones need to make an application to the superfund to be considered a beneficiary. The same will also apply if the Binding Death Benefit Nomination has lapsed.
This can be extra problematic if you have ex-spouses or multiple applicants fighting over the funds – not to mention significant costs and time spent in preparing these applications.
The best way to avoid disputes like these from arising is to place a valid Binding Death Benefit nomination with your superannuation fund.
Depending on the superfund this usually involves completing the application form (ask your superfund), signing the document in front of 2 witnesses over the age of 18 years and sending it back to the superfund. Binding Death Benefit Nominations usually lapse every 3 years, so if you have done one in the past, check that it is still valid or if you need to do the process again.
Self-managed superannuation funds vs Retail funds – is there a different approach needed?
No matter how your super is held, whether it is in a self-managed superannuation fund or under a retail or industry fund, you will still need a Binding Death Benefit Nomination in order to instruct the super fund as to where the benefits should go after your death.
If you have a self-managed superannuation fund – the SMSF trust deed should be reviewed to see what requirements must be followed and if the deed permits a nomination to be made. If a BDBN is not possible, it may be necessary to update the deed prior to being able to put a nomination in place.
If you have a self-managed superannuation fund and don’t have a Binding Death Benefit Nomination, the trustees are most often family members who can legally exercise their ‘discretion’ to pay the super proceeds to themselves – which if they are acting within the terms of the trust deed is perfectly legal.
This can ultimately result in the exclusion of a sibling, if one sibling has control over the trust and chooses at their discretion to distribute themselves assets, and exclude siblings who, although may have been intended beneficiaries, do not share that control of the trust.
This is what happened in the case of Katz v Grossman  NSWSC. In this case, a dispute arose between siblings over their father’s superannuation trust fund, where there was a nonbinding death benefit nomination in place leaving the benefit equally to both children.
Other issues to consider – Notional Estate (NSW)
In New South Wales, having a valid Binding Death Benefit Nomination may not provide complete protection.
In a recent NSWSC case Benz v Armstrong  which involved $12M in super death benefits – the court found that a failure to revoke a Binding Death Benefit Nomination and give a replacement nomination was a transaction falling within what’s termed “Notional Estate”, which is unique to New South Wales. The state recognises not only the actual estate of a deceased person, such as property they held solely in their name, or bank accounts, shares and other property owned, but also, in certain circumstances, the notional estate of a deceased person, which includes superannuation entitlements and jointly held property.
Essentially ‘notional estate’ allows the courts to claw back assets into the estate if a family provision claim is made on the estate, which was what was done in the case of Benz v Armstrong , despite the deceased having a Binding Death Benefit Nomination in place.
This is a great example showing the importance of obtaining advice from an experienced estate planning lawyer when formulating a strategy to ensure your testamentary wishes can be fulfilled, and your estate protected from claims after you are gone.
Other than where notional estate may apply, in most cases, a valid Binding Death Benefit Nomination cannot be disputed.
The key word here is VALID – the validity of the Binding Death Benefit Nomination can be disputed – therefore it is important that these documents are executed correctly.
Different options to consider
There are certain advantages and disadvantages to consider when planning for superannuation to be transferred to a beneficiary. Depending on the unique circumstances of the individual and their beneficiaries, it is important to understand whether paying benefits directly to a beneficiary or paying benefits to the Legal Personal Representative so that they form part of the estate is the most suitable strategy.
We have covered this previously in our blog “How do you make sure your superannuation goes to your intended beneficiaries”.
There are different strategic outcomes that need to be considered when paying death benefits directly to a beneficiary. This is especially the case when paying death benefits to a non-tax dependent. A non-tax dependent can include adult children or siblings.
Super benefits paid indirectly to a non-tax dependent via the deceased estate may be more suitable if, for example, there is a large sum of money in your superannuation, and you want to direct the superannuation proceeds to Testamentary Trusts set up under your Will.
On the other hand, if you think your estate may be at risk of a family provision claim being made against it, paying death benefits directly to intended beneficiaries by way of a Binding Death Benefit Nomination may provide better protection, keeping the assets outside of the estate.
It’s about understanding the most effective way to pass on your wealth to suit your unique circumstances and documenting your wishes accordingly to ensure that your instructions can be followed, and the asset is protected.
Attwood Marshall Lawyers – helping you plan for the future and preserve your wishes
Attwood Marshall Lawyers have one of the largest and most experienced Wills and Estates teams in Australia. Our estate planning lawyers practice exclusively in this specialised area of law and have the skillset to put in place the most appropriate strategies when succession planning. We want to help you plan for the future, protect your assets and your family, and preserve your wishes.
Binding Death Benefit Nominations can be an important tool when completing your estate plan. However, if these documents are not prepared and signed correctly, there may be serious consequences that could potentially cost your loved ones tens or hundreds of thousands of dollars in legal costs and tax. It is important to discuss your intentions with an experienced estate planning lawyer who has a comprehensive understanding of succession planning and superannuation.
Our team can help you determine if your circumstances require a Binding Death Benefit Nomination in order to protect your assets and fulfil your testamentary intentions.
To discuss your estate planning needs, contact our Wills and Estates Department Manager, Donna Tolley, any time on direct line 07 5506 8241, email firstname.lastname@example.org or call 1800 621 071 any time. You can also make an appointment online now by booking using our online booking app.
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