Introduction
Superannuation has evolved significantly since its compulsory introduction in 1992, evolving into a massive $3.5 trillion industry as at June 2023. Of this total, approximately $884 billion is held in self-managed superannuation funds (SMSFs). For estate planning, understanding what happens to your superannuation death benefit upon passing is crucial.
Who can receive a Superannuation Death Benefit?
A superannuation death benefit is not considered an asset of the deceased’s estate. Instead, it is governed by specific regulations:
- The trustee of the superannuation fund can only pay the death benefit to individuals classified as “dependents” under the Superannuation Industry (Supervision) Regulation 1994 (SISR). Dependents include;
- Spouse;
- Child;
- Someone in an interdependency relationship with the member; or
- Individuals who fall under the “ordinary meaning:” of dependent
Without a valid Binding Death Nomination (BDBN), the trustee has full discretion over how the death benefit is distributed among dependents. If no dependents are identified, the benefit may be paid to the deceased’s estate.
Why Proper Documentation is Essential
Having a valid BDBN is crucial for the following reasons:
- Preventing Ongoing Disputes: With the rising value of superannuation benefits, disputes over distribution are increasingly common. Clear documentation can help avoid confusion and occurrences of conflict amongst beneficiaries.
- Compliance with Legal Requirements: The BDBN must fulfill formal requirements and comply with the SMSF trust deed. An invalid or improperly executed BDBN can lead to protracted and costly disputes.
Notable Cases to Consider
- Katz v Grossman [2005] NSWSC 934
A deceased’s daughter, the sole trustee of the SMSF, allocated the entire death benefit to herself despite the will specifying equal distribution. The court upheld this decision, highlighting the trustee’s discretion in the absence of a valid BDBN.
- Munro & Anor v Munro & Anor [2015] QSC 61
A BDBN directing the benefit to the “Trustee of Deceased Estate” was invalidated as it did not align with legal definitions. The proper terminology must be used to ensure validity.
- Williams v Williams [2023] QSC 90
A BDBN was deemed invalid because it was not properly served to all trustees as required by the trust deed, underscoring the importance of compliance with all procedural requirements.
Impact on Your Estate Planning
Given the increasing significance of superannuation in your estate, it is essential to ensure your superannuation death benefits are properly addressed. If you have an SMSF, meticulous attention is required to verify that your BDBN complies with both legal requirements and the SMSF trust deed.
Contact Us
For expert advice on managing your estate and superannuation death benefits, please reach out to Mimi Su at Matthews Folbigg Lawyers. You can contact Mimi at (02) 9806 7421 or via email at mimis@matthewsfolbigg.com.au
