How Do Wills And Super Fund Nominations Work Together?

How Do Wills And Super Fund Nominations Work Together?

A persons interest in a super fund generally doesn’t automatically form part of a deceased person’s estate.
Where the balance of a super fund goes upon the death of a fund beneficiary (“member”) depends upon whether or not the member has made a valid binding death benefit nomination (“BN”), under the terms of a super fund trust deed with notification to the trustee of the super fund.

The below is a very general, basic summary of the interaction of wills and BNs.

What is a valid BN?

SMSF members can leave a BN directed to a trustee instructing how they want their super benefits to be distributed, so long as this is permitted by their trust deed. Each deed can be unique in characteristics and terms so it is vital to ensure the original documentation is reviewed whenever dealing with an SMSF.

BNs can only be made in favour of dependants or Legal Personal Representatives (LPR, generally meaning the executor or administrator of a will).

BNs are also governed by Commonwealth superannuation legislation, namely the SIS Act, its regulations, ATO determinations and relevant common law.

Legislation contains strict requirements that must be observed for BNs to be effective.

The common law (that is, determination of cases by courts and tribunals) is that these requirements will be strictly enforced – there can be no retrospective rectification.

When is super part of an estate?

Provisions of a will relating to a BN will only be effective if –

• It complies with the legislative requirements mentioned above;
• Notice is given to the trustee;
• The beneficiary of the will is a dependent of the maker of the will at death, and is nominated as a dependent at the time of nomination.

If the provision is effective then the superannuation benefits will be paid to the dependent, and doesn’t invariably form part of the deceased person’s estate.

If there is a BN in favour of the LPR, then the deceased person’s interest in a super fund will be paid to the LPR.

Who can make a nomination

The obvious answer is the super fund member.

However if the super fund trust deed provides, the donee (that is, the person granted authority to act) of a power of attorney can make, amend or revoke a nomination, unless the power of attorney states otherwise.

Lapsing or non-lapsing?

In addition to a binding death nomination, some superannuation funds also permit a member to make a non-lapsing binding death nomination. This nomination is permitted under the SIS Act. A non-lapsing binding death nomination may only be made if permitted by the trust deed and with the stated consent of the trustee.

Otherwise, a nomination lapses after three years; it ceases to have effect at the end of three years after the day it was signed, or a shorter period fixed by the governing rules, but can be renewed, amended or revoked.

So, a super fund member or their advisers need to take care to renew a lapsing BN.

In the case of a non-lapsing nomination members would also need to take heed of any changing circumstances, and make any necessary amendments to a nomination.

The super fund trustee’s obligations on death of a member

The trustee needs to determine, generally, whether a nomination is apparently binding.

If so, then the trustee has to decide whether a nominee is a dependent (as defined by the SIS Act) or LPR at the date of death.

If a nomination or nominations is or are not binding, for whatever reason, in relation to dependant, then a trustee will usually pay the superannuation benefit to the LPR.

Summing up

The above is a very general guide, and of course is not legal advice.

This a complex area of estate planning law and has been the subject of many disputes brought to the relevant adjudicating bodies.

Further information, if required, should be sought from your existing lawyers, or from Best Interests Law (please contact our John Golinelli, an expert on estate planning, john@bestinterestslaw.com.au, or 0428 195 240), or from your financial adviser.

If you don’t have an adviser, we can recommend, and we work with, the team at Merit Planning East (contact Darren Howard (02) 8076 6026,or 0432 988 773, email dhoward@meriteast.com.au, or website www.meriteast.com.au).

Tim Muffet, Solicitor Director

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