Don’t forget about your most valuable asset
Superannuation. These days it’s considered one of your most important assets, if not the most important.
There’s a tendency to assume that when you die your super will go to the people you’ve nominated in your Will. Surely it forms part of your estate?
Actually, super is treated quite separately from your other assets.
The Trustee of your super fund decides who receives your “death benefits” (your super) when you die. Super legislation has rules about who can and can’t benefit. For example, a beneficiary has to be either a dependent (eg. spouse or children) or the executor of your will. A “dependent” includes someone with whom you share an “interdependency relationship” (a close, personal relationship where two people live together and give or receive financial or domestic support/care, eg. siblings).
As long as they follow these rules, and those of the super fund, the Trustee can ultimately decide who benefits from your super and in what amount. That can mean uncertainty and potential disputes.
But there are things you can do to help ensure your super goes where you want it to. You can make a Binding Death Benefit Nomination (BDBN) or a Non-binding Death Benefit Nomination (DBN).
As the name suggests, a BDBN gives you more certainty. You nominate who you want to receive your death benefits, and in what amount (if more than one beneficiary), so you effectively take away the super Trustee’s decision-making power. A BDBN generally can’t be challenged so your death benefits may be protected.
But to remain valid it has to be updated every 3 years – a bit of a hassle. And not all super funds let you make a BDBN. Still, if you suspect a dispute is likely given your personal circumstances, it may be worthwhile.
A DBN isn’t binding, but it’s still a way of guiding the super Trustee’s decision; not leaving it entirely to them. Plus you don’t have to regularly update it.
Of course, every decision has consequences. There are tax implications when you direct your super to someone other than your spouse. Before making your nomination you need to consider if you are causing additional tax to be paid that, with a little estate planning, could be saved.
Unlike probate (the process before an estate is distributed), super death benefits are paid quickly, often within 21 days. So your decision might consider who has the most immediate financial need.
Or by nominating the executor of your will in a BDBN, your death benefits are treated as part of your estate. That means someone who isn’t a dependent can benefit from your super, through your will.
It’s complicated and requires tailored professional advice. Importantly, be aware that super is separate to your estate.