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What happens to your super when you are no longer alive?

Superannuation is an area that is often forgotten or misunderstood in the estate planning process.

A super fund member cannot just sign a will and assume that their super benefits will automatically be paid in the way set out in their will. The super fund trustees are not bound by the deceased member’s will and may pay the benefits to either the deceased member’s estate or to appropriate dependants as they see fit.

In most cases problems will not arise. But problems can arise, for example: in same sex relationships; with “hidden” or multiple relationships; with “warring” children, and so on.

Moral and legal factors which may influence a super trustee’s discretion to pay a benefit to a person include:

  • the relationship between that person and the deceased member;
  • the person’s age and ability to look after themselves financially;
  • the extent of the person’s dependency;
  • the person’s financial circumstances;
  • the history of the person’s relationship with the deceased member; and
  • the strength of any other claims made by other people.

There is a further general restriction, and this is the trustees can only pay the benefits to certain persons, being a person who is a “super dependant” of the deceased member. This means a person who is:

  • a spouse,
  • a child (of any age); or
  • a person who was financially dependent on the member at the time of death; or
  • the estate of the deceased member.

Binding death benefit nominations ('BDBNs')
You can override the trustees' discretion by signing a BDBN.

A BDBN directs the trustee to pay the death benefits to a particular person. It allows you to control the trustees’ discretion as to who gets the benefits on your death. The trustee must pay the death benefit in accordance with the BDBN.

A BDBN may be used in conjunction with a so called “super will” to coordinate the payment of the deceased member’s super benefits with their other estate planning strategies.

A BDBN usually cannot be contested by an aggrieved person unless for some reason it is not valid. Possible reasons for a BDBN not being valid include:

  • the fund’s trust deed does not allow BDBNs;
  • the BDBN was not signed properly;
  • the client was not of sound mind when the BDBN was executed;
  • the BDBN is the result of a fraud or emotional or physical duress; and
  • the BDBN is more than three years old.

What other issues impact the decision to pay benefits from a super fund?

Some common problems for self-managed super funds ('SMSFs') in particular
The ongoing control of a SMSF will be held by the remaining individual trustees or the shareholders of a corporate trustee.

One common problem arises where only one of several children is a member and trustee of a SMSF. That child will control the SMSF on the death of both parents and may exercise his or her power as a trustee to the detriment of the other children.

Another common problem arises where the member wishes to leave their super benefits to a person such as a parent, sibling or a friend who is not a super dependant, as that term is defined. Such a person cannot receive a death benefit directly from the fund. One option is a BDBN  in favour of the estate, coupled with a will which specifically gives an amount equal to the super benefits to that person. Another option may be to leave non-super assets to that person and to only pay super benefits to dependants.

Either way, the situation calls for intelligent and informed estate planning. Please do not hesitate to contact us if you or someone you know needs assistance in managing the connection between their super and their estate planning.