Superannuation and Estate Planning

Did you know that superannuation (and any death benefits or life insurance proceeds taken out within super policies) are not assets automatically covered by the provisions of your Will?

Under the superannuation regime many trustees of super funds (including self-managed super funds) have the power to decide under the terms of the Trust Deed how your superannuation proceeds are to be distributed. They can only distribute to a spouse (including de facto partner) or a dependent (which includes adult children) or your estate. This does not include a parent, brother, sister, aunt, uncle or more distant relative.  It is only if the trustees pay the funds to your estate that your Will can then deal with who is to receive them.

In some government funds, it is set in stone as to how your superannuation entitlements are to be paid on your passing – commonly a percentage to your surviving spouse. There is no ability to change the way these schemes deal with the funds in such cases.

You can however nominate a beneficiary with most super policies. If this is a binding nomination then the super fund has to pay the funds direct to the person(s) you have nominated.  Those persons must however still be a spouse, dependent or your estate.  You cannot nominate a person who does not fall into one of these categories.  If your nomination is NOT binding then the super fund trustees have the discretion to override your nomination and pay the funds to whomever they think should receive them (amongst the same categories of people), which may not be the same as your wishes.

You should therefore do a binding nomination with your super fund so that there is no discretion in the hands of the trustees and that your intended wishes are carried out.  It is also very important that you consider this in the light of your Will and other assets of your estate.  It may be best that the nomination be in favour of your estate so that your Will can direct the funds how you wish.  It can also be used as a means of reducing the size of your estate over which challenge to your will may be treated.

Superannuation is now becoming a sizeable asset for many people especially with the life insurance or death benefit component. With families being a little more complicated in modern times with second and subsequent relationships, blended families and step-children more common than in the past, it is important that you do not omit to deal with the consideration of beneficiary nominations for your super.  This should be part of your estate planning process and be reviewed on a regular basis to take into account changed circumstances, tax and other considerations.