When you think of estate planning, what do you think of? A will (obviously), an enduring power of attorney (perhaps) and an advance health directive (maybe).
What many people do not think about at all is their superannuation death benefit (super).
For many, it’s set and forget and that’s quite alarming when you consider that a person’s super can represent a significant proportion of their wealth at the date of death.
Like assets held jointly or in a trust or a company, your super does not form part of your estate. While you can record your wishes in your will, it is not binding on your executor.
Who receives your super is in the hands of the trustee of your super fund.
If you have a valid Binding Death Benefit Nomination (BDBN), the trustee is bound to pay your super in accordance with its terms.
A BDBN may be invalid for a number of reasons including, but not limited to, that it has lapsed or the persons named as beneficiaries are not eligible to receive your super. Many super funds offer a BDBN that expires after three (3) years. If you have not refreshed your BDBN after that time, it will lapse and have no effect.
Only certain categories of people are eligible to receive super; a spouse (including a de facto spouse), a child (including minor, adult and stepchildren) and any person with whom the Deceased had an interdependency relationship. An interdependency relationship is one in which the parties lived together, had a close personal relationship and provided financial and domestic support and personal care to one another.
So, if you have left your super to your best friend (assuming they are not financially dependent on you), the trustee cannot act on the BDBN.
If there is no valid BDBN, the trustee of your super fund has full discretion to make the decision to pay out your super provided that the decision complies with the super funds’ trust deed and the Superannuation Industry Supervision Act (1993) (the SIS Act).
These situations can become messy in the context of blended families and relationships later in life.
What people may be unaware of is that the SIS Act does not provide a time limit for the existence of a de facto spouse. A super fund’s trust deed may provide a time limit which modifies the SIS Act but that is often not the case. Further, a dispute over your super is not decided based on who has the greater need for financial support. The trustee is guided by a general principle that the person to receive the super should be the one(s) who would have continued to benefit from the Deceased’s retirement savings had they continued to live.
Recently, we acted in a dispute between the adult children and a de facto spouse of a deceased person over a super balance of $550,000. The deceased had only been in a relationship for nine months at the date of his death. There was no time limit prescribed in the trust deed. The de facto spouse was independently wealthy. The deceased was close to his adult children who were in their early twenties with minimal financial resources. He had left nothing in his estate. The trustee made a decision to pay the entire super balance to the de facto spouse.
It can be akin to a game of musical chairs. The person living with the Deceased at the date of death, even if it is only a matter of months, may receive the Deceased’s entire super accumulated over many years.
If you wish to spare your loved ones the emotional angst and legal fees of challenging the trustee’s decision, use your super power, and include your super when next you are updating your estate plan.
