How to Make Sure One of Your Biggest Assets can be Paid in the Way You Intend on Your Death

March 2, 2020

Our superannuation is often one of the biggest assets we have. That is why it is important to make sure it passes on our death in the way we intend.

Gifting your superannuation Death Benefit is not as simple as you might think. This bulletin looks at what difficulties may arise for your spouse or children if you die without a valid Binding Death Benefit Nomination or a properly prepared Will or self-managed superannuation fund trust deed.

On your death, the Trustee of your superannuation fund (for both an industry superannuation fund and a SMSF) will decide who they pay your Death Benefit to.

Your eligible beneficiaries, that is the Executor (or Administrator if you have no Will) of your estate, your spouse, your children and anyone dependant on you, can apply to the Trustee to receive your Death Benefit.

The problem arises where your Executor is also an eligible superannuation beneficiary, which is often the case where you have appointed your spouse or children as your Executor.

Your Executor has a duty to maximise the value of your estate and to avoid a conflict of their own personal interests. Recent cases have confirmed that it is a conflict of interest for your Executor to apply to your Trustee to have the Death Benefit paid in any way other than to your Estate, unless your Will specifically authorises them to do so.

It may be beneficial from a tax point of view for part or all your Death Benefit to be paid directly to your spouse or your children, either as a lump sum or as a pension, rather than to your estate.

But if your Will does not authorise your Executor to either apply for the Death Benefit themselves as your spouse or child, or to not apply for your Death Benefit at all so it can be paid to another beneficiary, your Executor must apply to have your Death Benefit paid to your estate.

If you do not have a Will the issue becomes even more complicated. Your spouse will likely apply to be appointed as Administrator of your Estate.  They will then be obliged to apply for your Death Benefit to be paid to your estate. Once the Death Benefit is in your estate it must be paid in accordance with the rules of intestacy. The result being your Death Benefit must be split between your Spouse and your children.

In recent cases Executors/Administrators who have applied for and been paid the Death Benefit personally have been required to pay this back to the deceased’s estate.

Another issue arises where your Executor/Administrator is not only your spouse but also a co-trustee or co-director of your SMSF. If you do not have a properly drafted Will and SMSF trust deed, your spouse may be forced to pay your Death Benefit to your estate, even if that is not what you had intended.

To make sure your superannuation is paid to the person you intend, contact us to properly structure your estate by either:

1. preparing a modern Will with properly drafted superannuation clauses;
2. completing a valid Binding Death Benefit Nomination; or
3. updating your SMSF trust deed.