For many people, superannuation forms the largest part of their estate. And as such superannuation is a very important part of estate planning and this is becoming increasingly so over time as balances increase, and more people utilise superannuation to grow their wealth.
However clients can be surprised to find that their Will can be completely ineffective when it comes to disposing of their superannuation benefits on their death. Your benefits (including any life insurance proceeds) may not automatically form part of your estate and therefore may not be disposed of through your Will.
So how can it go wrong?
Things can go dramatically wrong, as was seen in the case of Katz v Grossman  NSWSC 934. In Katz’s case, a member of the fund died with two children – a daughter who was a trustee of the family SMSF and a non-member son. The father left $1M in superannuation benefits with a direction in his Will that all his superannuation assets were to be split between his two children equally. On his death, the remaining trustee – his daughter as trustee did not take into account his nomination and paid all of the deceased member’s benefits to herself. The NSW Supreme Court held that she was entitled to take this action under the fund’s trust deed and the Will was ineffective. The trustee of your superannuation fund is generally required to pay your benefits either directly to your dependants or to your estate. You may be able to nominate whom and in some cases how these benefits are paid depending on the specific rules of your fund. So you need to be aware of the rules that apply to your fund, and ensure that you have in place effective nominations that reflect what is important to you in the event of your death.
And keep your nomination(s) up-to-date, this is not a “set and forget” exercise, things change, children grow older, you may divorce and remarry or you may just want to change your beneficiaries.
Consider the tax implications: There can be different tax treatment depending on who receives your benefit, whether the benefit is received as a lump sum or a pension, the benefits tax components and also whether any life insurance proceeds are included, so again it is important that when reviewing your estate planning you take a holistic approach including your superannuation benefits so tax doesn’t erode the amounts left to your beneficiaries.
There are strategies that can be utilised to ensure your superannuation benefit is paid in a tax effective manner in way that reflects your wishes. This is a complex area and it is essential you seek independent and professional advice.
This article is intended as a source of general information only and no reader should act on any matter without first obtaining professional advice.