Superannuation – background
Superannuation (“super”) was introduced in Australia in 1991 as a private wealth structure, based on a trust concept. This unique type of asset can only be dealt with in your Will under certain circumstances, as it is governed by its own legislation, and not by succession law.
Each super fund is then governed by its own rules and Trust Deed.
Until you reach the ‘preservation age’ (55+ depending on your date of birth), or die before reaching this age, the balance of your super account at any given time is not actually owned by you – as a member of a super fund, you don’t physically own your super. It is held on your behalf, by the Trustee of your super fund: you have an entitlement to have funds paid to you when you reach the preservation age, or, as nominated by you, if you die early.
Who decides where my super goes when I die?
Ultimately, the Trustee of your super fund holds the power of determining what happens to your super. By law, Trustees can only pay super to one or more of your Dependants, or your Legal Personal Representative (“LPR”) – an Executor appointed under your Will. Dependants include:
• Your spouse;
• Your children;
• People who, at the date of your death, are in an interdependency relationship with you.
How can I have a say about it?
If you are a member of a super fund, when you die, how the Trustee of your fund will be required to pay your super depends on your fund’s Trust Deed. Superannuation laws permit funds to allow members to have a varying degree of say in directing where their super should be paid. It is important to note, that just as the law limits Trustees to paying your super to your Dependant(s) or LPR, it also limits you to directing the Trustee to pay your death benefits to your Dependant(s) or LPR.
Many super funds allow members to make a Binding Death Benefit Nomination (“BDBN”). The Trustee must distribute your super in accordance with your BDBN. Some funds only allow for non-binding nominations, which means that the Trustee of must consider your nomination, but is not bound to follow it.
Further, there are some super funds that do not permit any type of nomination at all. If you are a member of such as fund, you can include a clause in your Will expressing your wish of who your super should be distributed to, to be communicated to the Trustee following your death. Again, the Trustee is not bound to follow your Will.
How can my Super form part of my Estate and be paid in accordance with my will?
The only way you can have your super paid in accordance with your Will, and/or to anyone who is not considered as your Dependant, is when you are able to and have:
1.Executed and provided a Binding Death Benefit Nomination to your super fund, and
2.Your BDBN is current at the time of your death (most expire and need to be renewed every 3 years), and
3.Your BDBN directs the Trustee to pay your death benefits to your LPR.
In these circumstances, the Trustee is bound to pay your super death benefits to your LPR, meaning they will then form a part of your Estate, and be distributed as bequeathed under your Will.
Tax and Succession implications
You should consult an accountant in relation to any tax consequences where you intend to leave super or death benefits to a non-dependant.
You should obtain legal advice if you wish to leave your super to a non-dependant in circumstances where your Estate may not otherwise adequately and sufficiently provide for family members who may be entitled to bring a family provision claim against your Estate.
Given the significant amount of wealth that may become payable on your death, by way of accumulated lump sum super holdings, life insurance held with your super fund, an income stream or pension, or a combination of these, it is vital to know what type of nomination or direction, if any, your super fund allows, and ensure you take the necessary steps to implement your testamentary wishes.
If your fund allows for a BDBN, you should ensure you have a nomination in place that is current and reflective of your wishes. If you have specific wishes to pay some or all of your death benefits to persons who may not be considered to be your Dependants for the purposes of superannuation laws, you need to ensure your BDBN directs the Trustee to pay your super to your Legal Personal Representative. You also need to ensure that your Will appoints at least one Executor so that your LPR is easily identifiable to the Trustee.
If you have any concerns about your Will, or questions about Estate planning, Longton Legal are ready to take your call.