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Organised your will?

Yep.

Organised a binding death benefit nomination for your super?

What’s that?

Your super benefits are not automatically subject to your will. That is because your super benefits are held in trust. That means you are not the legal owner of the benefits – the legal owner is the trustee of the fund.  This means that, when you die, the trustees may pay your remaining benefits to either your estate or to appropriate dependants as they see fit.

In most cases there are no problems. The trustees give the money to the same people that you would have given it to yourself had the benefits been subject to your will.

But problems can arise. If there is any dispute as to who might have a claim on your assets, the trustee can find themselves in an awkward situation. What’s more, the trustee might resolve that situation in a way that makes sense to them – and your money does not end up where you want it to go.

Moral and legal factors which may influence a super trustee’s discretion to pay a benefit to a person include:

• the relationship between that person and the deceased member;
• the person’s age and ability to look after themselves financially;
• the extent of the person’s dependency;
• the person’s financial circumstances;
• the history of the person’s relationship with the deceased member; and
• the strength of any other claims made by other people.

There is a further general restriction.  Trustees can actually only pay benefits to certain people, known as “super dependants” of the deceased member. A super dependant is a person who is:

• a spouse,
• a child (of any age); or
• a person who was financially dependent on the member at the time of death; or
• the estate of the deceased member.

Binding death benefit nominations

Super fund members can override their trustees’ discretion by signing a ‘binding death benefit nomination’ (BDBN). This directs the trustee to pay death benefits to a particular person. This lets the member control the trustees’ discretion as to who gets the benefits on the client’s death. The trustee must pay the death benefit in accordance with the BDBN.

A BDBN may be used in conjunction with a ‘normal’ will to ensure consistency between the payment of the deceased member’s super benefits and their other estate planning strategies.

As long as a BDBN is valid, it will not usually be contestable. Some possible reasons for a BDBN not being valid include:

• the fund’s trust deed does not allow BDBNs;
• the BDBN was not signed properly;
• the client was not of sound mind when the BDBN was executed;
• the BDBN is the result of a fraud or emotional or physical duress; and
• the BDBN is more than three years old.

Some common problems for self-managed super in particular

The ongoing control of a SMSF will be held by the remaining individual trustees or the shareholders of a corporate trustee.

One common problem arises where only one of several children is a member and trustee of a SMSF. The worry is that this child will control the SMSF on the death of both parents. This control may be exercised to the detriment of the other children.

Another common problem arises is where a member wants to leave their super benefits to a person who is not a super dependant, such as a parent, sibling or a friend. These people cannot receive a death benefit directly from the fund. A solution here is for the binding death benefit nomination to be drawn in favour of the estate, along with a will which specifically gives an amount equal to the super benefits to that person. Another option may be to give the super benefits to a super dependant and leave non-super assets to these other people.

Either way, the situation calls for intelligent and informed estate planning. Please do not hesitate to contact us if you, or someone you know, needs assistance in managing the connection between their super and their estate planning.