Does your will cover your superannuation? 

We all should have a will, to avoid leaving our family with a legal mess, and to ensure our assets are dealt with as we wish. However, most people have savings tied up in super and may have assets held in trust. Your will may not cover these.

What happens to your superannuation on your death is governed by the rules in the superannuation trust deed. Those rules generally allow you to sign a form directing who should get your super if you die, known as a Binding Death Benefit Nomination or BDBN. This applies equally to self-managed super funds and large professional funds.

By using a BDBN, you can direct your super to go to one or more nominated beneficiaries, or you can direct it to form part of your estate, to be dealt with under your will. These choices are very important as they can have a significant effect on the amount of tax the beneficiaries pay.

If you direct your super to form part of your estate, it is dealt with according to your will. Your will can direct your super and other assets into trusts for your family members. These trusts are known as testamentary trusts. There is usually one testamentary trust for each of your beneficiaries. Each testamentary trust is controlled by a beneficiary unless they are underage at the time of your death. In that case, the trust is controlled by a trustee you nominate until the beneficiary is old and responsible enough to control it themselves. If you leave your super or other assets to testamentary trusts, the trusts give protection for the inheritance of your family members from creditors and spouses and give substantial tax savings.

On the other hand, if you do not have testamentary trusts established in your will, there can be tax savings and asset protection advantages in using a BDBN to direct your super to your spouse or other dependants. So, a BDBN requires good legal advice to weigh up all the options.

The legal requirements for a BDBN are also very technical. In a 2015 case, a deceased left a BDBN giving his super to the “trustee of deceased estate”. He intended his super to pass into his estate, then benefit the 2 daughters of his first marriage. However, the court held that the BDBN was invalid because it did not use the magic words “legal personal representative”. The result was that the super went to the deceased’s second wife, contrary to his wishes.

People often sign a BDBN without giving it much thought. In addition, many super funds fail to explain the death benefit nominations clearly to their members. As a result, many people believe their death benefit nomination is a BDBN when in fact it is non-binding, and many others have made an invalid nomination (e.g. to a parent or sibling) which the super fund has not advised them to correct.

These important issues should be carefully considered, with expert legal advice as part of estate planning including your will.

Contact Stephen Lynch on (02) 9923 2321 or slynch@somervillelegal.com.au

 

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