Superannuation is foundational to both financial stability and effective estate planning, serving as a mandatory scheme crucial for retirement income and holds a pivotal role in securing individuals' financial futures. As of March 2024, the total assets in Australia's superannuation system have reached an impressive $3.9 trillion dollars.[1]
A superannuation fund, in essence, is designed solely to provide monetary benefits, or benefits with monetary value, to employees upon reaching retirement.[2] Employers are mandated to contribute to your superannuation, with the mandatory minimum guarantee currently at 11%.[3]
Your super savings are a crucial investment in your future, representing your hard-earned money. A common misconception is that superannuation death benefits automatically form part of your estate and are governed by your Will. This is not the case. While a Will is a legal document that sets out who will inherit your assets and possessions when you die, it does not cover your superannuation death benefits. Superannuation death benefits need to be directed to a specific individual upon your death, known as your beneficiary.
This choice is critical, as it determines who will benefit from your superannuation savings after your passing. Unlike other assets covered by your Will, superannuation is managed under a trust structure, with the trustees responsible for determining who receives your death benefits. Therefore, making a binding nomination is essential to ensure your superannuation goes to your intended beneficiary without complications.
Properly managing and nominating your superannuation death benefits is crucial to ensure your loved ones are cared for in accordance with your wishes. This article will go through binding death nominations and how superannuation is treated after death.
Why Does Superannuation Not Form Part of My Estate?
Superannuation does not automatically form part of your estate and, therefore, is not governed by the directives set out in your Will. This distinction arises because superannuation is held in trust for you by the trustee of your super fund, not owned personally by you. As a result, the distribution of your superannuation benefits is managed by the trustees of the super fund, who have the authority to decide how the benefits are allocated upon your death.
When you create a Will, it dictates the distribution of the assets you own directly, such as your house, car, and bank accounts. However, because your superannuation is held in trust, it does not fall under the direct control of your Will. Instead, the trustee of your super fund has the final say on who receives your superannuation death benefit. Under regulation 6.21 of the Superannuation Industry (Supervision) (SIS) Regulations, a trustee is required to cash a member's benefits as soon as practicable after the member's death. The trustee can distribute the benefits to dependents at its discretion, as long as this is in accordance with the trust deed, trust law, and superannuation legislation. For instance, in the case of Tratter v Aware Super [2023] FCA 491, the court upheld a trustee’s decision to distribute 70% of the death benefit to the deceased member's surviving spouse and 30% to his mother.
However, the trustee's discretion is limited when there is an effective Binding Death Benefit Nomination (BDBN). To be effective, a BDBN must be allowed under the trust deed and meet several strict conditions as specified in section 59(1A) and regulation 6.17A of the SIS Regulations. The Australian Taxation Office (ATO) has stated that there are no restrictions on the trustee of a Self-Managed Superannuation Fund (SMSF) accepting a BDBN from a member, provided it does not nominate a person who cannot receive a benefit under the operating standards in the SIS Regulations. This position was supported by the High Court in Hill v Zuda Pty Ltd [2022] HCA 21, which confirmed that the BDBN requirements in regulation 6.17A do not apply to SMSFs. Nevertheless, a BDBN must conform to the SMSF's trust deed. making a valid death benefit nomination within your super fund is crucial. Without a binding nomination, the trustee will consider various factors, including the needs of your dependents, to decide who receives the benefit. This decision might not align with your personal wishes as outlined in your Will.
Therefore, to ensure your superannuation is distributed according to your intentions, it is essential to make a binding death benefit nomination. This legal directive helps manage how your superannuation benefits will be distributed after your death, providing clarity and peace of mind that your wishes will be respected.
Nominating a Beneficiary
In many cases, the trustee of a superannuation fund will directly pay the death benefits to the deceased member's dependents. When this occurs, the benefits do not form part of the estate. This direct payment ensures that the benefits are swiftly received by those who were financially dependent on the deceased. Section 10 of the Superannuation Industry (Supervision) Act 1993 (SIS Act) defines 'dependant' comprehensively for superannuation death benefit purposes. A 'dependant' includes the spouse of the member, encompassing de-facto partners and same-sex partners, along with children (including adopted, stepchildren, and those under the Family Law Act 1975 definitions), and individuals in an interdependent relationship at the time of the member's death. An 'interdependent relationship' is characterised by close personal ties where both parties provide each other with financial, domestic, and personal support, reflecting the Act's intent to recognise diverse familial and dependent relationships for superannuation benefit eligibility.
Alternatively, a superannuation fund may pay the death benefits, or a portion thereof, to the deceased member's legal personal representative. The legal personal representative, typically the executor or administrator of the estate, then manages these funds as part of the estate's assets. In this scenario, the superannuation death benefits become part of the estate and are distributed according to the deceased's Will or the intestacy laws if no Will exists, subject to any relevant court orders.
Superannuation funds, often offer various nomination options to ensure your super balance is handled according to your wishes after your death. Understanding these nomination types and their implications is crucial for effective estate planning and ensuring your superannuation benefits are distributed as you intend. Without a nomination, the trustee will use their discretion, considering factors such as the needs of your dependents, and their decision might not align with your personal wishes. Some superannuation funds have standard practices allowing members to nominate beneficiaries in the event of their death, helping guide the trustee's decision. The Australian Taxation office has a comprehensive guide on superannuation death benefits, outlining the types of nominations and how to apply for a super death benefit.[4] In essence the main types of nominations are as follows:
A binding death benefit nomination mandates that your super fund pays your account balance to your chosen beneficiary, provided the nomination is valid and in force at the time of your death. This can be a one-off payment or, in some cases, as a regular income stream. It's crucial to review and renew binding nominations every three years to keep them current. If you nominate a child under 18, their super balance may be placed in a trust until they turn 18, overseen by a trustee. Children aged 18 to 25, considered your financial dependents, can opt for regular income payments, with any remaining balance paid out in full at age 25 or until exhausted if they're permanently disabled. For a nomination to be legally binding, it must be in writing, signed, dated, and appropriately witnessed by individuals over the age of 18 who are not designated as nominees. The binding death benefit nomination only becomes valid once the trustee receives the documentation. Additionally, superannuation law mandates that only dependents of the deceased are eligible to inherit death benefits. Dependents typically include a spouse or de facto partner, a child, or anyone in an interdependent relationship with the deceased. Interdependence is defined as two individuals living together in a close personal relationship, or where one or both partners provide personal care or domestic or financial support.
By making a binding death benefit nomination, you can ensure that your superannuation benefits are distributed according to your wishes, providing financial security for your chosen beneficiaries without waiting for probate or facing potential legal contests. This type of nomination offers peace of mind, knowing that the trustee is obligated to follow your directives promptly.
Non-binding nominations express your preference for who receives your super balance but are not legally binding. The super fund considers your wishes and relevant laws, ultimately making a decision based on these factors and the needs of your dependents at the time of your death. Typically, non-binding nominations result in a one-off payment to the nominated beneficiary.
For those with an account-based pension or a Transition to Retirement (TTR) Income account, a reversionary nomination allows your super benefits to transfer directly to a nominated beneficiary upon your death, continuing the income stream without interruption. This option isn't available to everyone and requires specific account types. The Law Society of New South Wales has an informative page on superannuation death benefits, going through many frequently asked questions.[5]
Case Studies
Munro v Munro [2015] QSC 61
In Munro v Munro, the Queensland Supreme Court considered the validity of a Binding Death Benefit Nomination (BDBN) made in favour of the "Trustee of Deceased Estate" within a SMSF. The SMSF's trust deed specified that a BDBN could only nominate a dependant or a legal personal representative. The Court held that a legal personal representative, defined in the Superannuation Industry (Supervision) Act as the executor of the deceased's will, is distinct from a trustee of a deceased estate. Consequently, the BDBN in favour of the "Trustee of Deceased Estate" was deemed invalid under the SMSF's trust deed.
Re Narumon Pty Ltd [2018] QSC 185
In Re Narumon Pty Ltd, the Queensland Supreme Court addressed the effectiveness of a BDBN executed under an Enduring Power of Attorney (EPOA). The Court ruled that the BDBN, executed via EPOA, served to confirm and extend the member's previous BDBN. However, the Court cautioned that any attempt by attorneys under the EPOA to vary the original BDBN could constitute an invalid "conflict transaction" under the Powers of Attorney Act 1998 (Qld).
These cases illustrate various legal challenges and considerations surrounding Binding Death Benefit Nominations (BDBNs) within the context of superannuation law. They highlight the importance of complying with trust deeds, statutory requirements, and legal principles when making and managing BDBNs to ensure they are effective and enforceable.
Conclusion
Navigating the complexities of superannuation in estate planning is essential for ensuring that your financial assets are distributed according to your wishes and the law. Unlike other assets, superannuation benefits do not automatically form part of your estate. Understanding the distinctions between binding and non-binding nominations, as well as the legal definitions of dependants under the Superannuation Industry (Supervision) Act 1993, is crucial. This knowledge empowers individuals to make informed decisions about nominating beneficiaries and managing their superannuation affairs effectively. By taking proactive steps, such as updating binding death benefit nominations regularly and aligning them with your estate planning strategies, you can ensure that your loved ones are provided for financially in accordance with your intentions.
At Carter Dickens Lawyers, we understand the complexities of superannuation law and estate planning. Our team is here to help you navigate these intricacies, providing expert guidance and tailored solutions to ensure your superannuation benefits are managed in line with your wishes. Whether you need assistance with drafting or updating your Will, understanding your binding death benefit nomination options, or resolving disputes related to superannuation, we are committed to supporting you every step of the way.
Disclaimer: The information provided here is for educational purposes only and should not be considered legal advice. If you need legal assistance, we recommend contacting Carter Dickens Lawyers or consulting a qualified attorney. Legal matters can vary based on laws and regulations, and it is important to seek professional advice for your specific
[1] Afsa, ‘Super Statistics’ (Web Page) <https://www.superannuation.asn.au/resources/super-stats/>.
[2] Scott v Cmr of Taxation (Cth) (No 2) (1966) 40 ALJR 265 at 278.
[3] Australian Taxation Office, ‘Key super rates and thresholds’ (Web Page) < https://www.ato.gov.au/tax-rates-and-codes/key-superannuation-rates-and-thresholds#Superguaranteepercentage>.
[4] Australian Taxation Office, ‘Superannuation death benefits’ (Web Page) < https://www.ato.gov.au/individuals-and-families/super-for-individuals-and-families/super/withdrawing-and-using-your-super/superannuation-death-benefits>.
[5] The Law Society of New South Wales, ‘Superannuation Death Benefits’ (Web Page) <https://www.lawsociety.com.au/resources/resources/my-practice-area/elder-law/superannuation-FAQs>.
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