Super and Death

Its been a bit quite here lately…

Not many people realise that super does not form part of a person’s estate at death. Super is money held on trust for a member and until that member receives it the money is not legally their money. So when you die your will doesn’t cover what happens with your ‘member benefits’. It is the trustee of the fund, subject to the deed, that decides who will get paid your super. The SIS Act restricts who the trustee can pay be memember death benefits to – spouse (current or former), children, dependants and someone in an interdependency relationship or to your legal personal respresentative so that it does form part of your estate.

The trustee of an industry super fund is likely to be a fat man sitting in a glass office somewhere who doesn’t even know you. This stranger will decide who in your family can get the benefits. In most cases they would pay the surviving spouse with little worry. But they have the power to decide – they could pay one child instead of all chidren, or a former spouse instead of current etc. You can overcome this problem by having a binding death benefit nomination. BDBN. This is a form which if filled in and signed correctly. and permitted by the deed, makes the trustee duty bound to follow. Any defect in the document could mean it is invalid – there is a case where someone wrote their date of birth instead of the date of signing and his invalided the document. I also encountered a financial planning practice that had set up hundreds of these with only 1 witness = SIS regulations states you need 2 so all invalid.,

If you have a SMSF this is more critical as when a member dies the person that controls the trustee is often also a beneficiary or potential beneficiary of the fund. Imagine a SMSF worth $1mil. Dad dies and the daughter then becomes sole trustee. She has a brother, but totally disregards him and pays the $1mil to herself. THis happens all the time and this was a real case.

As super balances increase super succession planning is becoming more essential, yet I have yet to meet a client who understands what happens to their super at death.Worse, I have yet to meet a lawyer who understands it, unless that lawyer specialises in this area. I have just seen a will drafted by a solicitor where the super is dealt with in the will – this solicitor is clearly negligent because the testator asked him to sort out his super! The client has a sole member SMSF with 1 child and himself as trustee. Fund is worth about $3mil and there is no BDNN in place – wonder how fair the son will be to his 2 brothers and sisters if dad suddenly died.He could legally pay himself.