Where does my Super go when I die?
An important tool in estate planning is the use of binding death nominations which require a superannuation fund’s trustee to pay the balance of a deceased member’s account as he or she directs.
Many people wrongly assume that their superannuation will pass to their beneficiaries according to their will, they do not realise that a superannuation fund trustee has the discretion to pay the balance of a deceased member’s account (a death benefit) to any one or more of the deceased member’s dependants in whatever proportion the trustee decides. This discretion may be exercised by the trustee in ways that the member did not want.
There is however a mechanism set out in the superannuation law by which a person can give a binding direction to the trustee of the person’s superannuation fund. This is called a binding death nomination.
In all funds except Self Managed Superannuation Funds (SMSFs) regulated by the Australian Taxation Office, binding death nominations must be made in a specific format and must be renewed at least every three years.
The Australian Taxation Office has determined that in funds regulated by it there is no need to renew binding death nominations. So members can complete them as they may wish, file them and only change them if their circumstances change.
However there is an historical catch. It was considered until the ATO made its determination that the renewal restriction applied to all funds, including SMSFs. Accordingly all superannuation fund trust deeds drawn up until recently either contained a direct requirement for renewal at least every three years or referred to legislation that required it. If a SMSF deed contains the requirement, or imports it from legislation, then the requirement must be met, even if the ATO does not consider it is necessary.
The way to correct this is to amend the SMSF deed and, often, the form attached to the deed for the nomination purpose.
Anyone who wishes to include a binding death nomination as part of their estate planning related to their Self Managed Superannuation Fund should have their deed reviewed at the same time.
