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What Happens To Your Super When You Die?

September 2014 

With all the discussion around superannuation, one of the key questions that is often neglected is what happens to your super when you die?

The general rule is that superannuation is not part of your estate unless you expressly make it part of your will, right? Well, maybe not.  A recent case before the Supreme Court highlights the importance of having a binding death benefit nomination in place for your superannuation alongside a will. 

What forms part of the estate?
An unmarried son, James, tragically dies at the age of 40. His mother and father had an acrimonious relationship since separating when James was 5 (divorcing just under 2 years later).  His estate was worth approximately $80,000 with superannuation of more than $450,000. 

At the time of his death, the man lived with his mother, who applied for Letters of Administration and Probate to manage his estate. Her obligation as administrator was to "use her best endeavours to maximise the size of the estate."

However the mother received advice that the superannuation does not form part of the estate. She sought to have his superannuation distributed to her in her personal capacity (not to the estate), because while she was not a nominated beneficiary, she was a non-binding beneficiary because of their interdependent relationship. 

The superannuation benefits were eventually paid to the mother by three different funds because she had a relationship of financial and emotional dependency with James (James was bipolar and had lived with her 30 of his 40 years and they shared the household expenses).  

Challenging the estate
During this time, the father's lawyers queried the mother's intentions for the superannuation benefits stating that to have the superannuation transferred to her in person was a breach of her fiduciary duties as administrator of the estate. The response they received was that superannuation is not an asset of the estate.  And so it went to court.  

The court agreed with the father's lawyers, ordering that the superannuation benefits form part of the estate, that the mother (having been granted Letters of Administration to deal with the estate) had a duty to maximise the value of the estate, and that her self interest in the superannuation benefits should not have come before her responsibilities as administrator.  

By becoming an asset of the estate, the superannuation benefits were to be split between the mother and father.

Planning for your intended outcome
The outcome of this case would have been different had James had a binding death benefit nomination in place for his superannuation in favour of his mother, and made a will naming his mother as executor.  

While these factors do not guarantee that the payment of superannuation benefits will not be contested (and there are a number of SMSF related cases that do), the measures will go a long way. 

A checklist for nominating your beneficiaries
  1. Check your superannuation death benefit nominations  - who is nominated and do you want them to receive your superannuation benefits if you die?
  2. Review your will to make sure it is up to date for your current circumstances.
  3. Check nominations for the legal representative of your estate and whether this nomination is current and appropriate.

Many of us don't have proper plans in place in the event that we die unexpectedly and as the case above illustrates, it can leave behind a lot of hassle and heartache for your loved ones. 

Contact us on 02 9957 4033 for more information about planning your estate. 


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Last updated September 2014. This article is provided for information purposes only and should not be used in place of advice from your accountant. Please contact us on 02 9957 4033 to discuss your specific circumstances.

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Disclaimer

This article is provided for information purposes only and correct at the time of publication. It should not be used in place of advice from your accountant. Please contact us on 02 9957 4033 to discuss your specific circumstances.

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