Superannuation, SMSFs and Trustees – How do they interact with your Estate?
Your superannuation is not usually covered by your Will. The reason for this is that your super is held in trust for you by the Trustee of your super fund. You can make a binding nomination. A valid binding nomination creates a legally binding instruction on the Trustee of your super fund to distribute your super to the beneficiary or beneficiaries that you nominate.
Your binding nomination often needs to be reissued every three years, which also serves as a good reminder to update your Will and to check that your estate plan continues to be structured in an effective way.
Without such a binding nomination, a court of Tribunal can determine how to split the death benefit or superannuation in accordance with its own test in terms of who is dependent and how much they should deserve, even though it may be contrary to the deceased member’s wishes.
Where a member of a super fund wishes to nominate his or her spouse as the recipient of their superannuation death benefit, the trustee of the fund must be satisfied that the nominated recipient is eligible to receive the benefit under the Superannuation Industry (Supervision) Act (“the SIS Act”). The Trustee of the fund will not normally pay the death benefit to the nominated person until they are satisfied of this.
Proving the relationship in the case of a de facto relationship can be harder than for married couples. Where at least one person lives in NSW, couples can register their relationship under the NSW Relationship Register. Although a relationship cannot be registered in various circumstances, for example where one of the members is married.
It is quite okay to have individual members as trustees of self-managed superannuation funds. However, there is a danger that record keeping can become muddled and personal assets can be mixed with those of a fund.
It is also common for trading companies to grant security over their assets in connection with their loans, and some loan documents provide the security attaches not only to assets the company holds but also assets the company holds as trustee. If that occurred, the fund would be in breach of the SIS Act and the consequences will be serious.
Self-Managed Super Fund (‘SMSF’) may require extra caution for those looking to pass on their belonging to a designated inheritor. For a trustee of a SMSF to be bound by the beneficiaries requested by the deceased, a valid binding direction must be provided before death.
As Binding Death Nominations cannot be disclaimed, the parties involved can become caught with unwelcome tax consequences if the nominated beneficiaries are not death benefit dependents and receipt of the benefit was subject to tax.
The Court holds the view that “the trustee is entitled to ignore the direction in the Will” and entitled to distribute at its discretion. If your financial or personal circumstances have changed since your last will, such as the use of a SMSF, this may also have adverse consequences on your beneficiaries.
More Information
If you wish to obtain further information, advice or assistance in updating your will, or a will dispute, please contact one of our will lawyers in our Estate Planning team at Matthews Folbigg on 9635 7966, email us at estates@matthewsfolbigg.com.au or through the website www.matthewsfolbigg.com.au
DISCLAIMER: This article is provided to readers for their general information and on a complimentary basis. It contains a brief summary only and should not be relied upon or used as a definitive or complete statement of the relevant law. Liability limited by a scheme approved under Professional Standards Legislation.
