So what happens to superannuation when you die?
Generally speaking, superannuation is an asset that does not fall into your estate. This can have significant benefits and can be an essential aspect of your estate planning, especially for those who are in business or in financial distress. When you pass away, your estate then has to pay out all of your liabilities before any gifts can be made to beneficiaries.
If those liabilities exceed your estate’s assets, then your estate will be insolvent – your creditors get paid in priority to your beneficiaries, who may be left with nothing. But superannuation does not fall into your estate. Instead, you can make a direction you’re your superannuation benefits be paid directly to certain family members (“dependants” as defined in superannuation legislation).
In addition to this, most superannuation policies also incorporate a life insurance policy paid upon your passing. The life insurance component ranges widely, but oftentimes amounts to $100,000 or more. So why would this be relevant to you?
Take the following example: Mr Smith dies and has personal loans and liabilities amounting to $500,000 but the value of his personal assets is only $300,000. Mr Smith’s estate is insolvent, and his entire estate will be paid to his creditors. There is nothing left over in Mr Smith’s estate for his wife and child. Outside of his estate, Mr Smith has some superannuation savings, which includes a life insurance policy with a combined total value of $300,000. Mr Smith can direct his superannuation to be paid directly to his family.
This guarantees some financial security for Mr Smith’s family. Ideally, Mr Smith has up-to-date estate planning and has ensured that his superannuation is to be paid to his family through either a preferred beneficiary nomination or binding death benefit nomination to his superannuation fund. A preferred beneficiary nomination is a persuasive statement of Mr Smith’s intentions and payment directions for his superannuation death benefits, but it allows the superannuation fund to consider Mr Smith’s family circumstances at the date of his death.
The superannuation fund has the discretion to vary the nomination, and may do so if Mr Smith’s family circumstances had changed since he made his preferred beneficiary nomination. For example, he may have become divorced or separated from his spouse, or additional children were born after he made the nomination. The superannuation fund can consider these changes and pay the superannuation death benefits appropriately between Mr Smith’s family.
Alternatively, Mr Smith may elect to make a binding death benefit nomination. This removes any discretion from the superannuation fund – so long as Mr Smith’s binding death benefit nomination is valid, the superannuation fund must pay the superannuation death benefits exactly as nominated by Mr Smith.
There are strict requirements for making a valid binding death benefit nomination. Firstly, you can only specify certain dependents as your beneficiaries. Additionally, you should review the nomination regularly, whenever there is change in your family. Separating from a spouse does not change your nomination, which may guarantee your superannuation being paid to an estranged partner if you were to pass away.
Therefore, it is strongly recommended that you obtain professional advice before finalising a binding death benefit nomination. The example included here is a brief demonstration of the relative importance of holistic estate planning, that encompasses not only your will that deals with your estate, but superannuation and other matters that affect your loved ones after you have passed away. Incomplete estate planning can easily result in legal disputes following your passing, incurring unnecessary costs to your estate and loved ones.
The costs of professional estate planning advice and a carefully constructed will are insignificant when compared to the costs to your estate if litigation ensues after your passing.
How We Can Help
Quinn & Scattini Lawyers have a dedicated and specialised Wills & Estates team who are able to consider your circumstances and advise on all matters associated with your estate planning. If a dispute has arisen regarding the superannuation death benefits of a loved one, our team can also advise and assist in obtaining the best outcome for you.
We have a proven record, including instances of claiming insurance death benefits on behalf of a beneficiary from a terminated superannuation interest.
We are available to meet with you at any of our local offices (Brisbane, Gold Coast, Beenleigh, Cleveland and Jimboomba) or by telephone or video-conference.
This article is for your information and interest only. It is not intended to be comprehensive, and it does not constitute and must not be relied on as legal advice. You must seek specific advice tailored to your circumstances.