Is Superannuation covered by my Will?
Various legislation governs the role that superannuation plays in your Estate. Essentially, the Superannuation Industry (Supervision) Act 1993 (Cth) dictates that the Trustee of a Superannuation Fund has a discretion to pay your superannuation entitlements upon death to any one of the following (governed by the limitations of the particular Deed) (Section 10):
- to dependents
- to spouse (includes ex-spouse, heterosexual and same-sex relationships on a genuine domestic basis);
- children (includes step, adopted and biological children);
- to interdependent (close personal relationship, domestic support and personal care);
- to financial dependent;
- to legal personal representative (via your Will or Estate).
Superannuation entitlements are not automatically gifted by your Will. Just by saying in your Will that you want it gifted in a particular way, does not mean that this supposed ‘gift’ is effective!
Basically, the trustee of the superannuation fund will decide where your superannuation benefits go, unless you have provided a valid binding nomination directing them. So, superannuation can be accommodated in your Will if the trustee distributes the funds to your Estate. Either way, a good Will should include a clause to funnel these assets as you wish.
What are some of the reasons I should think carefully about where my superannuation goes?
Superannuation is often one of the largest assets that you can hold an interest in.
Frequently superannuation is increased by the use of a life insurance policy within the fund – often people are unaware of the potential windfall of life insurance, or the need to consider who should benefit from it.
Whether or not it is appropriate for your personal superannuation to be gifted via your Will, can depend upon many factors, not least of which:
- the risk of a family provision claim upon your estate (or whether you take advantage of opportunities in Queensland providing some protection to non-estate assets in certain circumstances);
- the risk of a claim by creditors/others on your loved ones if they had a direct cash gift/lump sums;
- whether you wish to benefit a non-dependent such as a sibling;
- the ability of the recipient to manage the money themselves (or need for some help);
- ability to nominate who manages finances for your children, if not to be your ex-spouse; and
- the tax consequences of each form of distribution (for example, did you know that the Medicare levy is assessed differently if the payment is mad via the Estate?) That additional levy 2% can equate to a big amount when payments are large.
What are some ways I could use my Superannuation to benefit my Will & Estate Plan?
There are many considerations relevant to what may be appropriate for you. Obviously, we recommend the correct approach be determined after considered advice is taken from your financial, taxation and legal advisers. There can be taxation consequences for concessional versus non-concessional superannuation contributions, and these combinations are an example only – well worth the advice of a professional to make sure you get the best solution!
Do I need to make a Nomination?
Most Superannuation Funds will allow you to make a Binding Death Benefit Nomination directing the fund trustee about who you want to receive the death benefits.
Some questions to consider:
- Do you have a Binding Death Benefit Nomination in place? (Do you know if your nomination is 3 year lapsing or non-lapsing?)
- Is it still current?
- Do you want to authorise an Attorney to renew this nomination if you lose capacity?
- Is there a life insurance component to your Superannuation?
- Has a qualified adviser read the Deed to ensure your SMSF Nomination complies with specific terms? Issues include appropriate review of the Deed, reviewing all variations were done with authority, consideration of nominations effectiveness and validity, addressing control elements in Corporate Trustees, adding members to the fund and more.
Taxation consequences follow from a decision to distribute to a death benefit dependant pursuant to the Income Tax Assessment Act (1997) (Cth) – ensure you obtain appropriate advice from your taxation professional.
5 Ways to Maximise Estate Planning with Super Benefits:
- Consider what sort of Superannuation Fund interest you hold, public or a private self-managed super fund.
- Obtain appropriate financial, taxation and legal advice to determine what is the best option for your superannuation entitlements (including what life insurance accompanies this interest). Options might include some of the following:
- Directly to a spouse or child via a lump sum;
- Reversionary Pension to spouse;
- Death Benefit Pension to a guardian for your children; or
- Via your Will (accessing protection inherent in a testamentary trust).
- If it is a Self-Managed Superannuation Fund, complete an Enduring Power of Attorney to enable any role you hold as trustee to pass seamlessly to a trusted (and objective) person, in the event you lose capacity, and not risk the fund becoming non-complying (if it is self-managed).
- Your Attorney may take your place as a Director of a Corporate Trustee of an SMSF in the event of your incapacity – alternatively, if no Attorney is in place, your incapacity would render you incapable of acting as a Director and thus affect the eligibility of the SMSF to the concessional taxation status.
- Do your Attorneys need to be held accountable for their actions, to make sure they provide for those you have nominated? If your attorney is only one of your children or your 2nd spouse – there may be potential for mismanagement or favouritism as to who benefits from your funds.
- Engage us to prepare a Will incorporating your wishes regarding any superannuation entitlements (including insurance) that reach your deceased estate, and go one step further and provide that if any such entitlements are received:
- Each of your children receive the same entitlement, and one is not disadvantaged simply by being over the age of 25 years (and a non-death-benefit dependent for tax purposes, which can trigger extreme tax consequences) (known as ‘equalising your gifts’).
- Restrict the payment of Superannuation Benefits to death benefit dependants only, to prevent unnecessary tax costs.
- Allow us to work with your other advisers to review your Superannuation Fund Deed to determine what Nomination (if any) you can make (each Deed is different). Self-Managed Superannuation Fund Deeds need to be carefully reviewed to ensure that they allow a nomination to be made. Complications can arise that may mean that your wishes are not followed, thus making a Self-Managed Superannuation Deed one that needs close attention to ensure you achieve the desired aim.
The information contained on this website is for general guidance on matters of interest only. The application and impact of laws can vary widely based on the specific facts involved.
Accordingly, the information on this site is provided with the understanding that the authors and publishers are not providing legal advice. As such, it should not be used as a substitute for consultation with professional legal advisers. Before making any decision or taking any action, you should consult with a professional lawyer from Rouse Lawyers.