Superannuation & estate planning

When dealing with estate planning, most view this as simply ensuring your assets go where you’d like when you pass away. A will is the traditional document to detail your estate assets and how you’d like them bestowed.

3 things a will doesn’t cover

What many people don’t realise is how much they have that’s classed as a non-estate asset.

These include:

1. Jointly owned assets (like the family home)
2. Superannuation accounts
3. Family Trust assets

So, having a will, even a power of attorney in place, is unlikely to take full care of your estate-planning needs.

Being a non-estate asset, Superannuation has a special part to play. The trustees can decide in their discretion where the funds should go on your death, in some cases even if you’ve made a nomination.

This is called a non-binding nomination and the fund is not forced to follow your instructions.

Why make a non-binding nomination?

Well, suppose Charles and Diana were divorced and they’d split their assets and moved on with their lives. Charles had been living with his new partner Camilla when he suddenly died. If he’d forgotten to update the BDNM on his Superannuation fund and it still listed Diana as the beneficiary, the fund would have no choice but to pay her. However, if the nomination was non-binding, Camilla could apply to the Super fund, requesting that she receive it rather than Diana. In this instance, the fund would look at the specific circumstances and decide who should get the funds. In some instances, Super funds have paid the new partner, even though there was a non-binding nomination to pay the former spouse.

Binding death benefit nomination (BDBN)

Most Superannuation funds and self-managed superannuation funds (SMSF) allow you to make a binding nomination. This allows you to nominate where your Super will go and ensures that the fund will follow your instructions. This type of nomination can also be called a binding death benefit nomination or BDBN.

2 main options for a BDBN:

• You can make a binding nomination to your estate. Your Super fund pays your into it so, in effect, becomes an estate asset.
• You can nominate your spouse or children using a binding nomination. You can even nominate a combination of your estate, spouse and children, if you wish.

Having the ability to keep your Superannuation outside of your estate, offers distinct advantages. For many, super is a substantial asset, especially when there is a death benefit included in the fund.

Keeping assets out of your estate can help you manage them more effectively. If there’s an acrimonious divorce in your past, children you’ve already provided for and you’ve moved along with your life, having non-estate assets to distribute means there’s less for former partners to attack a deceased estate.

Estate planning

As much as we’d all love to think our relatives will act in accord with our wishes, we’ve all heard the stories of families with bitter court battles over who gets what.

A disgruntled former spouse who doesn’t feel well provided for can launch an attack on an estate. They cannot, however, include non-estate assets such as Super with a BDBN in their bid for more.

What is a reversional pension?

Another alternative is to use a reversionary pension. This is a Super pension that automatically reverts to someone else upon death, usually your spouse. Should a wife nominate her husband as the reversionary pensioner and she were to die, the pension would continue in the spouse’s name.

The main advantage of a reversionary pension is that funds stays in the Super system, enjoying tax and, sometimes, Centrelink advantages. In the case of a binding or non-binding nomination, money is paid as cash to the beneficiary. If the spouse is over 65 and not working, he/she would be unable to put the money back into Super. This could mean he/she pays more tax and gets a lower age pension compared to what would have happened if he/she was a reversionary pensioner and funds stayed in Super.

A reversionary pension is only available for pension accounts. If you have a standard accumulation account, then you only have the choice of a binding or non-binding nomination.

Is it worth checking your Superannuation fund/s to see how your nominations are held?