Did you know that your Will cannot dictate who will receive your superannuation benefits in the event of your death?
Many people do not realise that on death their superannuation does not automatically become part of their personal estate. After your death, the trustees of your superannuation fund have a legal obligation to consider claims from all persons who say that they were "dependent" on you at the time of your death.
For example, following divorce or separation and if your children are over the age of 18, any new spouse or de-facto spouse may be the only person who will actually be "dependent" on you at the time of your death and have an enforceable claim on your superannuation benefits. If you had hoped that your superannuation would go to your children from your first marriage or via your estate, then you may be sadly mistaken.
Beware the "Good Samaritan"
A dependant for superannuation purposes may also be someone who was in an "inter-dependency" relationship with you or can prove that they were financially dependant on you at the time of your death. Since the introduction of the inter-dependency rules on 1 July 2007 there has been a disturbing trend of relatives or friends who become live-in carers for elderly single people making claims against their superannuation benefits on their death on the grounds of this supposed inter-dependency or financial dependency.
Binding Death Benefit Nominations
On joining most superannuation funds you are asked to nominate who should receive your superannuation benefits in the event of your death e.g. your spouse, children or your "legal personal representative" which is the Executor of your estate. However, this nomination is not binding on the trustees of the fund.
A Binding Death Benefit Nomination (BDBN) can provide more certainty. This is a legal document, binding on the superannuation fund trustees where you nominate who must receive your superannuation benefits in the event of your death e.g. your spouse or children directly or via your estate. You may even decide to share your benefits between dependants and your estate, specifying a percentage of your superannuation accumulated on death to go to each. Most superannuation funds, including Self Managed Superannuation Funds (SMSFs), can offer a BDBN.
"Possession is 9/10ths of the Law"
For a Self Managed Superannuation Fund (SMSF) an important consideration is who will be your successor to your role as trustee of your SMSF. The surviving member trustee may not necessarily be the person that you want to be solely responsible for deciding who will receive your member's balance. As the only surviving trustee, they hold and control all of the investments of the SMSF and all fund decisions made after your death, including the payment of your benefits.
Even if you have a binding death benefit nomination in place, if the surviving trustee fails to co-operate and wants to be difficult, the executor of your estate may have no recourse other than to resort to expensive and often protracted legal action.
SMSF Company Trustee – ruling from the grave
Having a private company act as trustee of your SMSF with you as the director and shareholder can be very important. With the right type of company and SMSF trust deed, transmission of shares can ensure that on your death your executor or other nominated legal personal representative will become your successor trustee director, and see that your death benefit nomination is honoured.
Have your personal circumstances changed?
If you have changes in your personal circumstances such as marriage or entering into a de-facto relationship, divorce or a potential inter-dependency or financial dependency relationship, we can assist you and your financial advisor or lawyer in identifying and addressing the issues that may affect your superannuation.
For further information on superannuation please contact Chris Campbell on 3218 3900.
This article was published in the Spring 2012 Horizon. For a pdf version of the newsletter please click here.