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When taking client instructions for estate planning, we have discovered that more often than not people do not realise that, upon their death, their superannuation benefit does not automatically form part of their estate to be distributed in accordance with their Will.

The Federal Court of Australia has held that ‘superannuation is not an asset of the estate and a trustee is not bound to follow the directions of a will. Even if superannuation is specifically mentioned in a will, it does not make it an asset subject to the terms of the will.’[1]

Generally, only assets owned in your name, such as your house, car, investments, savings and so on, make up your estate and can be dealt with under your Will.

Your super benefit, on the other hand, is held in trust by the trustee of your super fund and different rules apply.

Payment of a member’s death benefits is determined in accordance with the provisions of superannuation law and the super funds governing rules and/or trust deed. Essentially, it is the trustee of your super fund that will decide how your super benefit is paid after you die. Usually when a super member dies, their super benefits must be paid to an eligible beneficiary as a lump sum or pension. It is crucial to review your estate plan on a regular basis to ensure that your assets are directed to your intended beneficiaries or estate in accordance with your wishes.

If you hold a self-managed superannuation fund (SMSF) you can achieve this by completing a binding death benefit nomination (BDBN) form. A BDBN is often referred to as a ‘Will for your Super’. It allows a member to nominate a beneficiary or beneficiaries to receive their super benefits directly from their SMSF in the event of their passing.

Superannuation law only permits people within certain categories to receive the deceased member’s benefits directly from the fund – these include the member’s spouse (including a de facto), child, any person with whom they have an interdependency relationship, any financial dependants and their legal personal representative (executor/administrator of the estate). In the case of the latter, the superannuation benefits will then be distributed to beneficiaries in accordance with the member’s Will.

If there is no valid BDBN when that member dies, the remaining SMSF trustee may exercise their discretion to determine the ultimate recipient of the super benefits, subject to provisions of the SMSF trust deed. Therefore, without a valid BDBN the member’s Will is only relevant if:

  1. The provisions of superannuation law or the SMSF’s governing rules require the SMSF trustee to distribute the death benefits to the member’s estate; or
  2. Those provisions permit the SMSF trustee to distribute the death benefits to the estate and the trustee exercises its discretion to do so.

A BDBN can provide certainty for people establishing their superannuation and estate plans. They help to ensure that upon the member’s death, any super benefits are paid according to the member’s wishes and are not left to the trustee’s discretion.

It is therefore important to have both an up to date BDBN and Will that reflect your current wishes.

Contact Us for further advice on your death benefits and estate planning

[1] Stock (as Executor of the Will of Mandie, Deceased) v N.M. Superannuation Proprietary Limited [2015] FCA 612 at 44