Naturally in business focusing on delivering the best possible service to your valued clients is essential.  It is just as is important to place focus on yourself and your family’s legal affairs to ensure what you have worked so hard for will be protected for your loved ones when the time arises. 

This is why it’s so important to ensure you have a Will that covers your family’s needs and wishes, and that you understand how your superannuation death benefit may be distributed.

Why do you need a Will?

Dying without a Will can result in your family incurring unnecessary costs, being subject to extra grief and stress, and can result in your estate being distributed other than as you may have wished.

To ensure the smooth and successful transfer of wealth to occur (if need be) and to give peace of mind and certainty of financial and general outcomes to you and your loved ones, you’ll need a well-considered Will which provides clear instructions on the distribution of your wealth to your nominated beneficiaries.  Once created, it’s important to have your Will and Estate Plan reviewed and updated by an experienced legal professional every 5 years or earlier as aspects of your life change.

Superannuation and your Will 

Like many, you may be surprised to learn that superannuation does not automatically form part of your assets that will be gifted through your Will. Unless steps are taken with your superannuation fund, the Trustee of your fund has discretion on how your superannuation death benefit is to be paid in the event of your passing. 

For many Australians, their superannuation is often their largest cash asset and something that provides financial security when going into retirement. We spend many years working hard to accumulate the super we have so it often comes as a surprise to learn that our superannuation does not automatically form part of our assets to be gifted through our Will in the event there is any superannuation left at the time of our passing. 

Through your Will, you are able to gift all of your assets whatever you own personally at the time of your passing to those who you name as beneficiaries in your Will. You may be wondering why your superannuation is not considered as part of this given that your superannuation is made up of your earnings.  

The reason for this is that your superannuation account is principally a specific type of trust in which the Trustee of your superannuation fund holds your superannuation ‘on trust’ for you. This means that you do not ‘own’ your superannuation; rather, the Trustee of your superannuation fund is the owner. You, as the fund member, are entitled to enjoy the benefit of your superannuation fund once certain criteria are met (for example, financial hardship withdrawals or reaching retirement age). 

In the event of your passing, the remainder of your superannuation fund and any insurances attached to your superannuation (known collectively as your ‘superannuation death benefit’) will be distributed by the Trustee of your superannuation fund. The Trustee of your superannuation fund has the discretion in determining who receives your superannuation death benefit. 

In distributing your superannuation death benefit, the Trustee of the superannuation fund will take into consideration at the time of your death whether you: 

1. have completed a valid binding death benefit nomination with the fund; and

2. have any dependents at the time of your death. 

Testamentary Trusts and Super Proceeds Trusts – How they protect your nest egg

It is beneficial to have a Testamentary Trust and Super Proceeds Trust established in your Will to attract taxation savings and protect the assets of the Estate, whilst providing the person administering your Estate or managing the trusts set up in your Will with flexibility to deal with your money or assets in a way that most benefits your family and your beneficiaries.

What is a Testamentary Trust (TT)?

A TT is a type of trust created in advance within the Will that only comes into operation when the person who made the Will dies. TTs are often set up in Wills by parents who wish to ensure their children are placed in the best financial position and that hard-earned assets are not whittled away by the beneficiaries themselves or by external factors such as taxation considerations.

The most common way to do this is to make the TT “discretionary”, so the Trustee (the person you elected to care for and manage the Trust) can provide funds to your children (or other beneficiaries) as and when it is needed. This allows the Trustee (usually with legal and/or accounting advice) to be flexible with how they deal with your assets and to whom they give those funds to.

What is a Super Proceeds Trust (SPT)?

Your superannuation will likely be a significant portion of your wealth but can be vulnerable to unnecessary taxation consequences if appropriate steps are not considered. SPTs are established in your Will to ensure that your superannuation goes to the beneficiaries, and is not unnecessarily taxed. This does not mean that those beneficiaries will receive more of your estate over other beneficiaries, rather, the SPTs will work in conjunction with the TTs to provide your beneficiaries with ultimate taxation advantages. 

When will my superannuation be paid to my Estate?

Generally, it is only when you have not completed a binding death benefit nomination, you do not have any dependents, and you do not have anyone in an interdependent relationship with you, that the Trustee of your superannuation fund will gift it to your legal personal representative to be distributed in accordance with your Will. 

If you want certainty that your superannuation death benefit will be paid to your Estate and distributed in accordance with your Will, completing a Binding Death Benefit Nomination form whereby you distribute your superannuation to your legal personal representative will provide that certainty. 

Alternatively, if you want certainty that your superannuation will be paid wholly or in a proportion nominated by you to certain dependents (for example paid to one child instead of all your children equally), then making a Binding Death Benefit Nomination will allow for this to happen. 

What is a Binding Death Benefit Nomination?

A “Binding Death Benefit Nomination” form allows you to instruct how your superannuation fund is to be paid in the event of your death. As per its name, the form is binding on the Trustee and the Trustee must pay your superannuation in accordance with your instructions.

A Binding Death Benefit Nomination must however be valid at the time of your passing in order for the Trustee to pay your superannuation in accordance with that nomination. Subject to your superannuation fund’s individual requirements, a Binding Death Benefit Nomination is valid if: 

1. It is in writing; 

2. Signed and dated by the member in the presence of two independent witnesses; 

3. Nominates eligible persons to received your superannuation death benefit; 

4. If distributing to more than one eligible person, the total distribution equals 100%; and 

5. The completed Binding Death Benefit Nomination has not lapsed (i.e. has not expired). 

With a Binding Death Benefit Nomination, you are generally limited on who you may gift your superannuation death benefit.  Eligible persons who you may nominate in your Binding Death Benefit Nomination are: 

1. your spouse/dependents; or 

2. your legal personal representative. 

By selecting “legal personal representative”, you are instructing the Trustee to pay your superannuation death benefit to your estate for it to be distributed in accordance with your Will.

A Binding Death Benefit Nomination can be lapsing or non-lapsing. In the event your nomination is a lapsing nomination, this means that it will expire and you will need to renew it periodically. The general term of a lapsing nomination is 3 years. Some superannuation funds offer a non-lapsing binding death benefit nomination and this means that it does not expire until you make a new one overriding your previous instructions.

What is a Non-binding Death Benefit Nomination?

A Non-binding Death Benefit Nomination allows you to let your Trustee know how you wish for your superannuation to be distributed at the time of your death. Through a Non-binding Death Benefit Nomination, you may list any one to be a beneficiary of your superannuation death benefit. 

However, as its name suggest, the form is not binding on the Trustee and the Trustee may distribute your superannuation differently to what you have written in your non-binding death benefit nomination form. 

Who are considered as dependents?

A dependent generally refers to the member’s spouse, children and or any who you were in an interdependent relationship with at the time of your passing. 

An interdependent relationship is defined as a close personal relationship between the member of the superannuation fund and another person. This relationship is usually characterised by: 

1. the member and the other person living together; and 

2. one or each of them provides the other with financial support, domestic support and personal care.  

What happens if I have not completed a Binding Death Benefit Nomination with my superannuation fund?

In the event you have not completed a Binding Death Benefit Nomination, the Trustee of your superannuation fund will firstly consider whether you have anyone who fits in the ‘dependent’ definition at the time of you passing. 

Upon assessing the member’s personal situation at the time of their death, the Trustee may distribute your superannuation to any one of your dependents or multiple dependents in the proportion they deem fit. 

The Trustee may also consider distributing it to your legal personal representative so that it may be distributed in accordance with your Will, however that is discretionary and may not happen if you do have anyone who fits within the definition of a dependent. 

Where to from here?

We recommend that you contact your superannuation fund and: 

1. Request details of your current death benefit nomination, if any; 

2. Whether your current death benefit nomination is a binding or non-binding nomination; and 

3. Whether your current death benefit nomination is a lapsing or non-lapsing nomination. 

If your superannuation is a retail fund, they will have the required nomination form for you to complete.  If you have a self managed super fund, you need to obtain professional legal advice before making a final decision in this regard.

Making enquiries and ensuring that your nominations for death benefits are not overlooked as important in ensuring that your superannuation is paid that way you would like it to paid in the event of your passing. 
To discuss your personal affairs in more detail, please contact Anna Huang or Robert Lamb on anna@hillhouse.com.au, or robert@hillhouse.com.au.