Does Superannuation form part of your estate?
Superannuation can often end up being one of an individual’s most significant assets at the time they pass away. A majority of people have minimal involvement with the management of their superannuation and are unaware just how valuable of an asset it is. A common misunderstanding is that superannuation can be dealt with in the will. Most do not realise that not only does a will not cover your superannuation but failure to complete the requirements under superannuation laws may result in an undesired person receiving the proceeds of your superannuation.
Why does superannuation not form part of my estate
Australian laws separate superannuation proceeds from an individual’s personal assets. Superannuation is not dealt with under state succession laws, instead superannuation is governed by its own federal legislations and regulations. The benefit of superannuation being dealt with separately is that it does not form part of the estate and can therefore be gifted to a specific person. So long as the deceased met certain requirements to gift superannuation properly, the distributor is obligated to distribute the proceeds in accordance with the deceased’s instructions and the distribution cannot be challenged.
The biggest disadvantage is the lack of public knowledge as to how superannuation is distributed. The misapprehension that superannuation forms part of the estate may mean that the proceeds are distributed to a person the deceased did not intend it to be distributed to.
What must I complete?
To ensure your superannuation proceeds are gifted to a particular person when you pass away you must complete a Death Benefit Nomination Form. A Death Benefit Nomination can be used to list a beneficiary for any type of super fund, retail, industry or self-managed. In Australia superannuation is separate from an individual’s personal assets. A Death Benefit Nomination gives direction as to who should receive the proceeds of the deceased’s superannuation fund. There are two types of Death Benefit Nominations that can be made:
- a binding nomination – which will bind the trustee to pay the superannuation proceeds to the beneficiaries the deceased nominated; or
- a non-binding nomination – the trustee can use their discretion to either follow the deceased’s instructions or distribute the superannuation proceeds to the estate or another beneficiary.
Some superannuation providers do put an expiry date on a Death Benefit Nomination. It is quite common for a Nomination to only remain valid for 3 years and therefore the nomination may require updating and renomination once the period expires. Therefore, when lodging a Death Benefit Nomination you should also determine whether:
- the appointment is lapsing – the nomination will expire after a certain period of time and will require updating once the period ends; or
- non-lapsing – the nomination will not expire unless you choose to change the beneficiary(s) of your superannuation proceeds.
Just because you complete the Death Benefit Nomination, it does not mean the form is valid, it may be invalid if:
- the allocation of beneficiary entitlement does not equal 100%;
- the form has not been executed or witnessed properly;
- the beneficiary is not a dependant under superannuation laws or the legal personal representative of your estate; or
- the nomination was revoked or has expired.
The key is that the beneficiary of your superannuation must be considered a dependent under superannuation laws. Superannuation laws define a dependent as the deceased’s spouse, the deceased’s child or someone who is financially dependent or in an interdependent relationship with the deceased at the date the deceased died.
What if I do not complete a Death Benefit Nomination or it is not valid?
If you do not complete a Death Benefit Nomination, or your nomination is invalid, then the trustee will determine who should receive the proceeds (which will be either a dependent or beneficiary of your estate). Alternatively, superannuation will be paid to your legal personal representative and will form part of your estate, where it will then be paid out in accordance with the terms of will or intestacy rules (if no will).
Where there is no Death Benefit Nomination, a disappointed beneficiary or dependant can complain to the Superannuation Complaints Tribunal to have the distribution challenged. This is not possible when a valid Death Benefit Nomination has been made by the deceased before they pass away. However, it is difficult to have the distribution overturned as there are strict time limits and conditions a disappointed beneficiary or dependant must comply with when making a complaint. They must prove that the distributor failed to use real or genuine consideration, acted in bad faith or failed to act within the power that was appointed to them.
Your superannuation is not dealt with in your will and if you want to ensure that you choose who receives the benefit of your superannuation, then you must complete a Binding Death Benefit Nomination form. If you do decide to complete a Death Benefit Nomination, ensure that it has been completed correctly and that it has not expired or else your trustee under your will may decide who will receive the benefit of your superannuation. This may not be the person you intended to receive it.
If you have any questions or require assistance with drafting or updating your will in Queensland, then please contact the property team at My Property Protect for more information.
Kayleigh Swift, Associate
Chloe Skubis, Graduate Law Clerk
About the authors
Kayleigh Swift is an associate in our Commercial and Property team who assists with Employment Law matters. With a high level of experience in commercial and retail leasing, voluntary and involuntary purchase and sale acquisitions, property development and employee relations, Kayleigh provides practical advice to ensure smooth business transactions.
Chloe Skubis is a Graduate Law Clerk in our Property team who assists with various conveyancing transactions. Chloe is very experienced in residential conveyancing and is a problem solver. She always provides efficient service to all her clients.
Tags – #wills #estates # superannuation #estateplanning #beneficiaries #succession #deathbenefitnomination #assets #superannuationlaws