Many Australians have an interest in one or more superannuation funds. A person’s superannuation interests may form a significant part of that person’s wealth in the event of their death. This is particularly the case if upon their death a type of life insurance known as death benefit insurance is paid into the superannuation funds held on their behalf.
Superannuation is not, however, automatically considered an asset of a deceased person’s estate. It is therefore not always able to be dealt with by a person’s will. This is because superannuation is not held or owned outright by the deceased. Instead, their superannuation interests are held on trust for them by the trustee of the super fund. This is demonstrated by the fact that unless you meet the conditions for the release of any superannuation interests, the funds remain inaccessible to you during your working life.
Superannuation Binding Death Benefit Nominations (‘BDBN’)
It is possible to direct a trustee to deal with your superannuation interests in a certain way upon your death, but your options will always depend on the terms of the trust deed and any rules associated with the exercise of the trustee’s general discretion. This is the case whether the superannuation interests are held in a government super fund, a retail super fund or in a self managed super fund (‘SMSF’).
If no direction is provided to a super fund trustee regarding how to distribute your superannuation interests, the trustee will generally be able to exercise their discretion to make a decision about how much and to whom any superannuation interests are to be paid.
The most common form of direction able to be provided to a super fund trustee is by way of a binding death benefit nomination (‘BDBN’). This document may be supplied to a member by the super fund trustee and it must be prepared and executed properly in order to be considered valid. For example, a BDBN must
- be in writing,
- be signed, and dated by the member in the presence of 2 witnesses, being persons:
- each of whom has turned 18; and
- neither of whom is a person mentioned in the BDBN; and
- the BDBN must contain a declaration signed, and dated, by the witnesses stating that the notice was signed by the member in their presence.
A BDBN is capable of being revoked at any time, but otherwise, the nomination will generally cease to have effect after 3 years from the date it was made. Non-lapsing BDBN’s may be made in some cases depending upon the trust deed and any applicable rules.
The marriage of a person with superannuation interests may invalidate any binding or non-binding nominations made prior to the marriage. Each superannuation fund trust deed may have specific rules regarding how marriage is treated. This is because the superannuation legislation refers to eligible superannuation beneficiaries being limited to spouses, de factos, children, dependents and inter-dependents.
Even non-lapsing nominations can be rendered non-binding on trustees after a person remarries, enters into a de facto relationship, separates from their spouse or partner or becomes divorced.
Because of the complex nature of human relationships and the attempts by legislators, Courts and lawyers to define those relationships on paper, it is not always clear how a trustee may interpret the law and the evidence and material it receives after someone’s death.
The decisions made by trustees are subject to review and sometimes litigation because people disagree with the decisions made by a super trustee. The forum for any review may include AFCA, the Superannuation Complaints Tribunal or the Supreme Court. Such disputes are inevitably lengthy and expensive.
The particular circumstances of person with a superannuation interest will always be best known by that individual. That individual will know how they want their superannuation interests paid after their death. Whether they are married, separated, divorced, in a de facto relationship, living in an interdependent relationship or in some other situation, they are best placed to make their own decision and to tell their super trustee of their wishes.
To avoid leaving the decision about how to dispose of a significant financial interest after death, it is advisable that some consideration be given to preparing a BDBN and ensuring that it is kept current and valid.
Read more about the effect of marriage on your Will.
Read more about the effect of marriage on your Enduring Guardian.
Read more about the effect of marriage on your Power of Attorney.
Read more about the effect of marriage when don’t have a valid Will.
Whether you are married, separated or divorced you should still consider how marriage may affect your legal interests and your estate planning matters.
If you would like assistance with your estate planning matters please do not hesitate to contact Turner Freeman Lawyers on 13 43 63 or via our online enquiry form.