Superannuation planning has never been so critical

February 28, 2019

Superannuation is a bit of a sleeping giant. It is something most Australian’s have in their portfolio of interests for purposes such as receiving retirement benefits and, in some cases, death benefit and other insurance benefits. Superannuation is also a victim of being “out of sight, out of mind” when it comes to people acknowledging the significance of their policies and the value of their death benefits; which are often in the hundreds of thousands.

The importance of superannuation planning is now becoming even more critical and the lack of planning can have a much bigger impact than ever anticipated.

Recently, an Australian Court set aside a trustee’s decision to pay death benefits to the daughter of a deceased member of a self-managed superannuation fund.

By way of explanation and background, there are a few necessary steps and rules to keep in mind when dealing with superannuation (including retail, industry and self-managed) funds:

  1. Some, but not all, superannuation funds may allow for a member to make a nomination setting out how they want their death benefits to be paid when they pass away.  This is often referred to as a “Binding Death Benefit Nomination”.
  2. Many Binding Death Benefit Nominations will lapse automatically after 3 years from the date they were made (unless the rules of superannuation fund say they can last longer).
  3. A superannuation fund can only pay death benefits to the member’s estate or the member’s ‘death benefit dependent‘, which is defined in the superannuation laws to mean a spouse, childdependent or a person in an interdependency relationship (e.g. a person who is living with and in a close personal relationship with the member and either of the member or the person provides the other with financial, domestic support and personal care).
  4. If there is no valid binding nomination in place when the member dies, the trustee of the superannuation fund may decide who receives the member’s superannuation entitlements.
  5. Where there is a valid Binding Death Benefit Nomination, the trustee of the super fund must follow it.
  6. Where there is an invalid or lapsed Binding Death Benefit Nomination, the trustee may consider the nomination but is not bound to follow it and may exercise its own discretion.

This case involved a situation where the deceased member was the trustee, along with her daughter, of her own self-managed superannuation fund.  The deceased member had made a Binding Death Benefit Nomination during her lifetime but the nomination had lapsed.  The deceased member was survived by two adult children and her husband of 32 years (who was the step-father of the two adult children).  The deceased member was said to have wanted her two children to benefit from her superannuation after she was gone.  Following her mother’s passing, the daughter appointed her husband as the co-trustee of the fund to help her to administer the fund, as the superannuation laws state that there must be two individual trustees appointed for a self-managed superannuation fund. The same day as appointing her husband as the co-trustee, and in the absence of any valid binding nomination, the daughter and her husband (as trustees) exercised their discretion to pay the death benefits of more than $400,000 solely to the daughter. The deceased member’s surviving husband did not receive any benefit.  The surviving husband then applied to the Court to have the decision set aside and also to have the daughter and husband removed as trustees of the superannuation fund. The husband was successful. For those that are interested in reading about the legalities of the case, you can find an article written by the Head of our Succession & Elder Law practice group, Michele Davis, here with all the details.

It is unfortunate that these types of issues arise, but sadly they are not uncommon.  Society is gaining a larger appetite for litigation and as a result the need for careful planning is even more critical.

Cases like the above mentioned are not unique and with a portion of our modern families becoming blended and the dynamics of each family being so different, superannuation planning cannot and should not be “one size fits all”.

Where there is no binding nomination in place, what results is uncertainty as to outcome and opportunity for dispute.

There are three essential questions to ask yourself when considering superannuation planning:

  1. What exactly are my superannuation entitlements that are payable upon death?
  2. Who will receive my entitlements when I pass away and is that what I want?
  3. What can get in the way of my superannuation planning being effective and how do I protect myself and my family from those risks?

Superannuation can be a significant factor in estate planning and lack of careful planning can put families at risk of heart ache and loss at a time where they already have too much of both.

If you’re interested in learning more about what to consider in your own superannuation planning, feel free to call our office on 07 3392 0099 to find out how we can help.