November 18, 2015

It is commonly assumed that upon your passing, your superannuation will simply follow the other assets in your Will to form part of your estate, and that control of your superannuation will be assumed by your Executor. This is not the case.

Everyone who has superannuation needs to be aware of this, as the consequences can be far-reaching, particularly as they could result in your superannuation not being distributed to your intended beneficiaries.

At the time of your death, your superannuation may be your most valuable asset, especially if by that stage you are elderly or ill, your family home has been sold and you are residing in a nursing home. It is vitally important that your super is directed according to your wishes.

Generally, the balance of a super fund will be directed by the trustee(s) of the fund, irrespective of whether it is a public or self-managed fund. In the absence of a binding death benefit nomination, the trustee(s) (which may or may not change as a result of your death) may direct the balance to the estate, however they are under no obligation to do so. Importantly, the continuing or incoming trustee(s) will not necessarily be the same person(s) as the Executor of your estate. The superannuation fund trustee(s) is not bound by the terms of your Will, and unless there is a valid binding death benefit nomination in place, this means they can direct the funds at their absolute discretion.

The following is a real life example adapted from a NSW Supreme Court case (Katz v Grossman). After the death of his wife, the father appointed his daughter as co-trustee of his super fund. The father intended that upon his death, his superannuation would be split equally between his daughter and his son (in line with the rest of his estate). However, the father did not effectively formalise a binding nomination for both his children. Upon his death, his daughter, who had become the sole trustee of the fund, appointed her husband as an additional trustee and directed his entire superannuation balance (in excess of $1 million) to herself. The son’s only recourse was to challenge the arrangement in the courts, a very costly process which ultimately failed in this case.

In some instances, it is preferable to prevent superannuation being directed to the estate, however it is essential also that this wish is built into a comprehensive estate plan. Particularly in the event of the death of the first spouse, it may be advantageous or preferred for the balance of the deceased’s superannuation to remain in super rather than flow to the estate. Retaining the balance in a super fund may ensure the amount remains in a low-tax, high asset protection environment and also eliminate the necessary liquidation of assets (e.g. business real property).

Managing your superannuation in terms of your estate planning is important, and you will need advice to determine the best course of action in your specific circumstances. As your accountant, we are well-placed to guide your decision-making and to coordinate with other professionals towards delivering a properly integrated estate plan that may be executed smoothly and seamlessly upon your passing.

For advice and help regarding superannuation in relation to your estate planning arrangements, please contact BrentnallsNSW.