Superannuation Does Not Automatically Pass Under Your Will
One of the most common misconceptions in estate planning is that your superannuation will automatically be distributed in accordance with your Will.
Unlike assets held in your personal name, superannuation does not generally form part of your estate when you die. Instead, the trustee of your superannuation fund is responsible for deciding who receives your superannuation death benefit, subject to the fund’s governing rules and any valid nomination you have made. The trustee may pay your superannuation directly to an eligible dependant or to your legal personal representative (your estate), depending on the circumstances.
As a result, a carefully drafted Will can be undermined if your superannuation arrangements have not also been properly considered. For many Australians, superannuation represents one of their largest assets, making it an essential part of any estate planning strategy.
Who Can Receive Your Superannuation Death Benefit?
Under the Superannuation Industry (Supervision) Act 1993 (SIS Act), a superannuation death benefit can generally only be paid directly to a dependant or your legal personal representative (estate).
The definition of “dependant” for superannuation purposes is often much broader than people expect.
A SIS dependant may include:
- Your spouse, including a de facto partner.
- Your children, regardless of their age.
- A person who is financially dependent upon you.
- A person with whom you are in an interdependency relationship.
Adult Children
Many people are surprised to learn that adult children can still be considered dependants for SIS purposes, even if they are financially independent and living separately. This means an adult child may be eligible to receive a superannuation death benefit directly from the fund.
Financial Dependants
A person may be considered a dependant if they relied upon you for financial support. This can extend beyond immediate family members in certain circumstances. Whether a person is financially dependent is determined based on the facts existing at the time of death.
Interdependency Relationships
The SIS Act also recognises interdependency relationships. These relationships commonly arise where two people:
- Have a close personal relationship;
- Live together; and
- Provide each other with financial support, domestic support and personal care.
An interdependency relationship is not limited to romantic partners. It may arise between siblings, relatives or other individuals who share a close relationship and provide ongoing support to one another.
What If Someone Is Not A Dependant?
If a person is not a SIS dependant, they generally cannot receive your superannuation death benefit directly from the superannuation fund. In some cases, the death benefit may instead need to be paid to your estate and then distributed in accordance with your Will.
How Can Your Superannuation Be Dealt With In Your Estate Plan?
There are generally two ways your superannuation may be dealt with when you die:
Option 1: Direct Payment To A Beneficiary
Your superannuation fund may pay the death benefit directly to an eligible dependant.
This can occur where:
- You have made a valid binding death benefit nomination; or
- The trustee exercises its discretion to pay the benefit to a dependant.
Option 2: Payment To Your Estate
Alternatively, your superannuation may be paid to your legal personal representative (the executor of your estate).
Where this occurs, the superannuation becomes an estate asset and is then distributed in accordance with the terms of your Will. This can provide greater flexibility where complex estate planning arrangements are being used, including testamentary trusts.
What Is A Superannuation Beneficiary Nomination?
A beneficiary nomination is a direction provided to your superannuation fund identifying who you would like to receive your superannuation death benefit when you die.
Depending on your fund, nominations may be:
A valid binding nomination generally requires the trustee to pay your death benefit in accordance with your instructions, provided the nomination remains valid and complies with the fund’s requirements.
A non-binding nomination, however, is generally treated as guidance only and the trustee may ultimately decide who receives the benefit.
Why Your Will And Your Superannuation Must Be Considered Together
Your Will and your superannuation nomination operate separately.
Changing your Will does not automatically change your superannuation nomination. Likewise, updating your superannuation nomination does not alter your Will.
Problems often arise when:
- A former spouse remains nominated on a superannuation account;
- Adult children are included in a Will but not reflected in the superannuation arrangements;
- A binding nomination has expired;
- A person intended for their superannuation to pass through a testamentary trust but failed to nominate their estate.
For this reason, your superannuation arrangements should always be reviewed at the same time as your Will.
How Can Lawyers for Wills Help?
Estate planning involves more than preparing a will in isolation.
Lawyers for wills can review your estate planning arrangements and help identify whether your will, superannuation nomination, and other relevant documents reflect your current intentions.
Depending on your circumstances, this may involve:
- Reviewing your existing will
- Considering how your superannuation is currently nominated
- Identifying potential inconsistencies between your documents
- Explaining available estate planning options
- Advising on whether your superannuation should be directed to your legal personal representative
- Helping you update relevant estate planning documents
Your superannuation fund can also provide information about the types of beneficiary nominations it accepts and the requirements for making or updating a nomination.
What Should You Do If You Discover a Conflict?
If you discover that your will and superannuation nomination do not reflect the same wishes, it may be useful to review both arrangements before making changes to either document.
Do not assume that changing your will automatically changes your superannuation nomination. These arrangements are generally dealt with separately, and a nomination must be updated through the superannuation fund according to its requirements.
Obtaining legal advice can help you understand how the documents interact and determine what changes, if any, may be appropriate.
Final Thoughts
A will and a superannuation beneficiary nomination can form important parts of an estate plan, but they do not necessarily operate in the same way. Superannuation does not automatically form part of your estate, and the way a death benefit is distributed can depend on the nomination, the fund’s rules, and superannuation law.
Reviewing these arrangements together can help identify inconsistencies and ensure that your estate planning documents continue to reflect your wishes.
If you need help preparing or reviewing your estate planning arrangements, the experienced team at Tonkin Legal can provide guidance on wills, superannuation beneficiary nominations, and other estate planning matters. Call us on (03) 9435 9044 or contact us by email at reception@tonkinlaw.com.