Superannuation Death Benefits – Be Warned

As a matter of law an entitlement under a superannuation fund does not automatically form part of the assets of a deceased estate.

All superannuation funds in Australia are trusts, which are governed by their respective deeds of trust, subject to the Superannuation Industry (Supervision) Act 1993 (Cth), and administered by a trustee who holds a discretion in terms of the persons whom the trustee decides should receive the superannuation trust fund proceeds.

Generally speaking, eligible persons will be the deceased member’s dependants. (Spouse, partner, children etc). The estate of a deceased member has no right to compel the payment to it of funds administered under a superannuation trust.

However, an estate does fall within the class of persons who are eligible to be an object of the exercise of the trustee’s discretion – in terms of applying funds. Generally, it is open to the estate of a deceased member to apply to the trustee to be considered as a recipient of the funds under the trustee’s exercise of discretion.

The trust deeds of many (but not all) superannuation funds in Australia permit and enable a member to give a written direction (nomination) to the trustee of the superannuation fund during their lifetime – directing the trustee where to pay the benefits of the fund upon the death of the member.

Sometimes the trustee will be bound to act in accordance with those communicated directions. Those are called Binding Death Benefit Nominations.

Sometimes the directions are not binding on the trustee. Sometimes those directions lapse after a certain period of time (often 3 years), while other times the nominations will be non-lapsing. It all depends on the wording of the specific trust deed in your superannuation fund.

The general principle is that benefits from a regulated superannuation fund are paid to a deceased member’s legal personal representative and/or one or more dependants. If no such person can be found after reasonable enquiries, the trustee may distribute the benefits to other persons in accordance with the trust deed.

Dependants of a fund member include:

• a legally married spouse;
• a de facto spouse or domestic partner (opposite-sex or same-sex);
• the member’s children, including step-, adopted and ex-nuptial children, and any child of a member’s (legal or de facto) spouse (this covers children under 18);
• anyone who was financially dependent on the member at the time of death;
• any person who was in an interdependency relationship with the deceased at the time of death.

Financial dependency is defined to include total and partial financial dependency. Although a trustee must be satisfied that the financial dependency is reasonable and not illusory, relatively small financial support has been found to constitute partial financial dependency for the purpose of superannuation death benefit distributions.

When distributing superannuation death benefits, a trustee usually takes into account a range of factors including:

• the claimant’s degree of financial dependency;
• the strength of the claimant’s relationships with the member;
• the claimant’s other entitlements to the member’s estate;
• the claimant’s age, health, employment and financial circumstances;
• the terms of the member’s Will;
• any non-binding nominations.

No eligible dependant has an absolute right to a superannuation death benefit.

A trustee properly exercising a discretion may distribute the whole of the death benefit to one dependant over others. The trustee does NOT have to share the fund equally between competing claimants.

The Trustee of some superannuation funds will choose to prioritise dependants ahead of the Executor, and therefore such funds will not ask for probate because they will not be paying anything to the estate. Such super funds are exercising their ‘Trustee’s discretion’ to only pay to the people they determine as beneficiaries. This is quite legal, but is confusing to most ordinary Australians who don’t understand this area of law.

Be Warned: Many people think they can leave their super to whomever they wish. Some even think they don’t need to make a Will because of this. They are wrong on both counts.

Federal superannuation laws mean that only very specific persons can be eligible to receive your super after you die UNLESS you state your testamentary intentions in a valid and up-to-date Will AND nominate the executor of your Will to receive your super as part of your deceased estate to be handled according to the terms of your Will.

For further information about superannuation and estate planning, check out some of our other articles:

• https://www.genders.com.au/death-benefits-who-benefits-do-you-know-who-will-receive-the-benefits-from-your-life-insurance-policy-and-superannuation-fund/
• https://www.genders.com.au/essential-guide-to-super-death-benefits/

Contact us to learn more about superannuation, estate-planning and estate-administration solutions, by visiting our website today and schedule a free no obligation telephone consultation to find out how we can help you and yours.

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