Superannuation Traps – Estate Planning

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It is an error to think that your superannuation forms part of your estate and will necessarily be distributed in accordance with the directions in your Will.  The overriding principle is that the trustee of a superannuation fund, whether self-managed or an industry based fund, has a discretion to decide to whom to pay a death benefit.  Remember a death benefit includes life insurance which may be held within the superannuation fund.

The exception to the above discretion is where a member leaves a Binding Death Benefit Nomination with the trustee of the fund.

The Superannuation Industries (Supervision) Act (“SIS Act“) prescribes limited classes of people to whom death benefits can be paid.

They include spouses, former spouses, a person financially dependent upon the deceased, children and persons who have an interdependent relationship with the deceased.  Spouses include de facto spouses and same-sex partners.  Two recent cases highlight the need to ensure death benefits are properly dealt with when one is planning one’s estate.

Case A:

The deceased died intestate (without a Will).  The assets were worth $80,000, but the death benefits in the superannuation fund were $453,000.  There was no Binding Nomination.  The Administrator (if there had been a Will would be called the Executor) of the estate was the person who the deceased nominated to be the beneficiary of the superannuation death benefit in a Non-Binding Nomination.  The Administrator claimed from the trustees of the superannuation fund (an industry fund) and was paid the death benefits.  A beneficiary of the estate who was a statutory beneficiary of the intestate estate, called on the Administrator of the estate to account to the estate for the death benefit.  This would mean the Administrator would not receive the superannuation benefit for her own use but on behalf of the estate.

The court concluded that the Administrator who had claimed the death benefit was in clear conflict between her duty as the Administrator and the person claiming the death benefit to be paid to herself.  The court held this was a breach of her fiduciary duty, to act in the best interest of the estate as Administrator.  She was required to transfer the death benefit payment to the estate.

Case B:

The deceased provided in his Will a clause giving his superannuation to a beneficiary.

Unfortunately the deceased did not provide to the trustee of the self-managed fund any Binding Death Benefit Nomination in favour of the estate.

A surviving spouse/partner of the deceased remained in control of the superannuation fund and in exercising discretion as trustee of the fund, paid the whole of the deceased’s death benefit to herself and not to the estate as the deceased clearly had anticipated by his Will.

It was held that the reference to the superannuation death benefit in the Will was not a nomination within the meaning of the SIS Act and accordingly, the trustee was not obliged to pay the deceased’s death benefit to the estate.

Accordingly the provision in the Will leaving the death benefit to another beneficiary was ineffective.

SUMMARY

The above two cases highlight the need to carefully consider how death benefits will be dealt with in the case of a deceased member and the importance of leaving appropriate nominations and people in control of the trustee (in the case of a self-managed fund) or the appropriate nominations with the trustee of an industry fund.

It may also be important in Powers of Attorney to ensure that the attorney has the power to renew Binding Death Benefit Nominations which in some circumstances must be renewed every three years.  In the instance of a member of a fund being incapable of renewing a Binding Death Benefit Nomination, this may be very important.

Links

https://www.comlaw.gov.au/Details/C2014C00147

http://www.alrc.gov.au/publications/8-superannuation/superannuation-system

https://www.smallwoods.com.au/

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