While superannuation death benefits and life insurance proceeds can be paid to a deceased person’s estate, they are not assets that automatically form part of a deceased estate, and will therefore not automatically be distributed in accordance with their Will.
Accordingly, it is important to actively consider and deal with superannuation and life insurance in your estate plan, to control who receives your entitlements when you die.
There are many examples, which have led to costly litigation, of valuable entitlements (which includes superannuation death benefits and life insurance proceeds) being paid to unintended beneficiaries because the deceased person assumed that this was a personal asset which was dealt with automatically by their Will.
The best way to control who your entitlements are paid to is to make a Binding Death Benefit Nomination (“BDBN”).
Put simply, a BDBN is a legally binding document which allows you to direct the Trustee of the fund as to who will receive your superannuation benefits in the event of your death. As long as the nomination made is valid, a BDBN leaves the Trustee with no choice as to who receives your benefits.
You can choose to either direct your benefit to one or more dependents (ie. to your spouse, or children), or to your Legal Personal Representative (the Executor appointed by your Will), who is then required to pay out the money from the Estate in accordance with the terms of your Will.
You should ensure your BDBN is renewed as required (for some funds, their rules state that nominations lapse every three years). Even if your nomination does not lapse, we recommend reviewing it every three years to consider if it should be updated.
Preparing, renewing and reviewing BDBN’s is something that people often forget to do and the consequences of failing to ensure a valid, binding nomination is in place can have significant consequences after death.
Alternatively, most retail and industry superannuation funds provide the easier option of making a Non-binding Death Benefit Nomination on their website, but this type of nomination only informs the fund of your preferred beneficiary/ies, which the trustee of the fund is not bound to follow.
Each Self-Managed Superannuation Fund is subject to the rules of the SMSF Deed which establishes the fund. Most modern SMSF Deeds do make provision for members of the fund to complete a BDBN, however those nominations often require bespoke preparation.
If you are a member of an SMSF, it is vital to review the deed with your lawyer as part of your estate planning, and if a BDBN is required it can then be drafted and finalised by your lawyer to align with your overall estate planning needs.
After you have passed away, the legal personal representative of your estate will notify your superannuation fund/s. On death, the trustee of the superannuation fund will have to pay the deceased member’s “death benefits” (comprising the account balance at the time of death and any life insurance proceeds provided through the superannuation fund) to the nominated (or determined) beneficiaries.
If there is a valid BDBN in place, the superannuation fund will distribute your entitlements to the named beneficiary or beneficiaries on your nomination.
In the absence of a BDBN, the trustee of the superannuation fund will be required to make a determination with respect to whom the entitlements are paid, in accordance with the terms of the fund’s deed. There are strict limitation on whom the trustee of the superannuation fund can consider for payment of the death benefit.
For instance, the trustee of the fund may be required to pay the entitlements to your estate or may have discretion over which of your potential beneficiaries receive the entitlements (which requires your dependents to make a claim). Either way, this may be inconsistent with your wishes, may delay the process and may result in adverse tax consequences.
The answer to this question depends on the type of superannuation fund, the State or Territory that the member is based in, the terms of the fund’s deed and the powers set out in the Power of Attorney document.
However, as a starting point, a recent decision of the Supreme Court of Queensland confirmed that there are no restrictions in the federal legislation or regulations on appointing an attorney to make or renew a BDBN on behalf of a member.
Similarly, the Superannuation Industry (Supervision) Act 1993 (Cth) provides that in the context of a self-managed superannuation fund, a trustee may appoint an attorney under an enduring power of attorney (subject to the terms of the deed) and the fund would remain compliant when the trustee loses capacity.
Should you desire that your Attorney have the authority to make or renew a BDBN on your behalf, you should discuss this with your estate planning lawyer to ensure that your Enduring Power of Attorney is drafted to explicitly provide this power.
Our team of lawyers can provide you with advice and assistance regarding the appropriate actions you should take to ensure your intended beneficiaries are eligible for superannuation death benefits and the tax implications are minimised.
We can also advise you on the laws governing superannuation funds, which cover issues such as loans to superannuation funds and investments made by self-managed superannuation funds.
If you believe you may be entitled to a payment from a relative’s or domestic partner’s entitlements, we can assist you with the claiming process to ensure that you are best placed to receive a fair share. We can also guide you through the process of objecting to a determination made by a superannuation fund. This, unfortunately, can be the result of failing to make or renew a valid BDBN while you have the capacity to do so.
Importantly, if you are a member of a fund that has lapsing nominations, you should keep an eye on your member statements to ensure that as the years go by, your nomination continues to remain valid and binding. This quick task will ensure that your superannuation entitlements pass efficiently and in accordance with your wishes.