There is no disputing that superannuation is an extremely attractive investment structure and may well become your largest asset over time. What people often don’t realise is that a Will does not necessarily protect against some of the issues specific to superannuation in the event of their death.
The paying of a ‘superannuation death benefit’ is subject to legislation as well as the rules of the superannuation fund in which the assets are held. In many cases, as outlined on the ATO website, tax will be payable on the benefit.
Who decides where the benefits will go?
The trustee of your superannuation fund is responsible for directing how the superannuation death benefit will be distributed among beneficiaries. If a Binding Death Benefit Nomination (BDBN) is in place the direction will generally be made in accordance with the BDBN which stipulates how the member wishes their superannuation death benefit to be distributed. In the absence of a BDBN the Trustee will have discretion as to payment of the benefit and making its decision can be a time consuming and at times difficult process for the trustee which may significantly delay the payout of the death benefit. If no BDBN exists, any potential beneficiaries unhappy with the trustee’s decision are able to challenge it through the Superannuation Complaints Tribunal which further delays any payout.
Even if you have a small superannuation balance, many funds now automatically cover their members with life insurance which will form part of the final superannuation death benefit. This life insurance could easily be worth a couple of hundred thousand dollars in the event of your death.
Implications for members of self-managed super funds (SMSFs)
If you nominate a trustee to your fund, it has the discretion to NOT distribute the funds according to your wishes unless a BDBN exists. There have been several cases of superannuation death benefit disputes where the trustee has chosen to favour a particular beneficiary (usually themselves) in contradiction to the wishes of the deceased member. This could have easily be avoided if a legally enforceable BDBN had been put in place prior to the member’s death.
The value of professional advice
By seeking the right advice, you can ensure that your estate and your superannuation is distributed according to your wishes and in a tax efficient manner in the event of your death. For larger estates, a testamentary trust may be worth considering to receive the estate and superannuation death benefits to then be distributed according to your wishes in the most effective manner. A good solicitor will ensure you consider your wider estate planning objectives and that you implement the correct structures and legally enforceable agreements to give you peace of mind.
For an obligation free consultation regarding your estate plan, please contact the Fusion office on 1300 038 746