How to ensure your super is left to your loved ones


What happens to your superannuation when you die?


It’s a confronting question. For most of us, super is usually one of our biggest assets alongside the family home, so we need to get clarity on how to distribute our super like we would with other assets.

Further reading: How to avoid inadvertently leaving money to your ex

It’s your money and you decide who should get it. However, you must deal with it correctly for this to happen.

There are two important steps to get this done:

  1. Nominating your beneficiaries; and
  2. Making a Binding Death Benefit Nomination.

Let’s explain what each step involves and an example of what can happen if we don’t have clarity over our Self Managed Super Fund (SMSF) nomination.

Who can I nominate?

Firstly, death benefits can only be paid to a dependant of the fund member or to the member’s legal personal representative (the executor or administrator of the estate).

A ‘dependant’ includes a spouse (including a de facto partner of same or opposite sex), a person with whom the fund member had an interdependency relationship, a child of any age or a person who is financially dependent on the member. A child includes a biological child, adopted child, stepchild and ex-nuptial child.

Financially independent adult children can be paid from the fund, but they may be taxed higher than other beneficiaries.

What is a Binding Death Benefit Nomination (BDBN)?

A BDBN is a direction to the trustee of your superannuation fund to pay your death benefits to an eligible beneficiary or beneficiaries, or to your estate.

Superannuation does not automatically form part of your estate so without a BDBN, the beneficiaries would otherwise be decided by the trustee under the terms of the trust deed of the fund and relevant legislation.

In other words, no BDBN means you can’t guarantee your benefits will be paid out in accordance to your wishes.

Case studies: the dangers of leaving your SMSF distribution unclear

In Katz v Grossman, the deceased’s Will provided for equal distribution of the estate to his son and daughter. Considerable assets were held in an SMSF of which the daughter was the trustee.

The daughter paid the entire SMSF balance (approximately $1 million) to herself rather than dividing it with her brother.

Wasn’t this unfair, you say?

Probably. However, despite the provisions in the Will, the Court determined that the daughter (a trustee and dependant under the SMSF) was legally permitted to pay herself.

More recently in Ioppolo and Hesford v Conti, unintended consequences were the result of not considering an overall estate plan and the interplay between a Will and superannuation fund.

In her Will, the late Mrs Conti left her superannuation benefits to her children. She and her husband were trustees of an SMSF with considerable assets. After Mrs Conti died the trustee was replaced with a corporate trustee (a company controlled by the husband) which paid the deceased’s benefits to the husband.

Despite specific instructions in Mrs Conti’s Will that her husband was not to benefit from her interest in the SMSF, the Court found against the children’s claim to the funds.

Next steps

Just like having a routine health check-up, your SMSF should be monitored, analysed, and, if necessary, adjusted to achieve optimum performance.

This includes having in place a BDBN that accurately reflects your testamentary wishes and reviewing it regularly to ensure it takes into account your changing financial and personal circumstances.

You also need to consider who will be in charge of your SMSF after you die to ensure that your wishes as expressed in your BDBN are carried out.

If you or someone you know wants more information or needs help or advice, please book a time to see us here or call 03 9592 3356.

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