Superannuation – It does not form part of your estate

Public news

It is important to have proper estate planning to ensure that your assets are distributed according to your wishes. A major asset that will be of consideration is what will happen to your superannuation when your estate is distributed.

A recent decision in the Federal Court has clearly stated that superannuation will not be taken to form part of your estate and therefore, will not be subjected to the terms you put in your will.

The case concerned David Mandie, a millionaire who passed away in 2011 and the distribution of his residual estate. In his Will, he left all his estate to his daughter and excluded his two sons. In addition, David left a binding death nomination which named his wife as the beneficiary of his super fund, however his wife had pre deceased him.

After David’s death, the superannuation trustee divided his super fund equally between all three of his children. The Superannuation Complaints Tribunal held as the binding death nomination was not valid due to the wife’s death, the trustee was able to make the decision to distribute the fund so long as it was ‘fair and reasonable’ and held it was valid to distribute to all the children.

This was then appealed by the daughter to the Federal Court, relying on an agreement between her father and mother and the two sons which related to particular financial compensation for the brothers for their contribution to the family business.

A term of the agreement stated neither brother had any further rights against their parents or their respective estates. Accordingly, the daughter claimed that as the executor of the estate she should have been paid all of the superannuation death benefits.

The Court however concluded the following:

  • Superannuation is not an asset of the estate and therefore the super fund trustee is not bound to follow the Will’s direction;
  • The trustee does not need to look at what is entailed in the deceased person’s Will when they decide who should receive the benefits; and
  • In general, a super fund trustee will not pay the death benefits to an estate unless there is a binding death nomination in favour of the estate or there are no dependents.

The effect of this is that the trustee of your super fund will have the discretion to decide how they wish to distribute the benefits of your super provided that their decision can be taken to be ‘fair and reasonable’.

The way in which a person can ensure that they can direct who receives the benefits of their super fund in the event of their death is via a binding death nomination. This is a legally binding nomination that advises your superannuation trustee and can be obtained from your super provider.

In its absence, it will be the trustee who will literally choose who gets what.

A binding death nomination can only be valid however if it nominates a dependent which includes:

  • a spouse (including de facto, opposite and same-sex)
  • children of any age (including adopted or ex-nuptial)
  • any person(s) financially dependent on the member
  • any person(s) in an interdependency (rely on each other) relationship with the member
  • a legal personal representative

If you would like more information on the above or assistance in who to talk to about setting up a binding death nomination, please contact the MTA’s Workplace Relations Department on 8291 2000 or via email by clicking here.

By ensuring that you have the proper systems in place, you can avoid costly court battles within your family!