Have you considered the implications of your SMSF investment strategy in the event of your death, as it is highly probable that after your family home, your superannuation will be your next significant asset? Do you know what will happen to your superannuation upon your death? Will it automatically get paid to your Estate?
No. Death benefits are not automatically paid to your Estate. They are paid in accordance with the fund’s rules and by the fund’s trustee. A Death Benefit Nomination (DBN) should be executed to ensure your benefits are allocated per your wishes.
What is a death benefit nomination again?
A DBN is a notice you give to the trustee of your superannuation fund requiring a death benefit to be paid to nominated dependants and/or the Legal Personal Representative of your Estate. You can only make a DBN if your fund’s governing rules allow it.
What is the difference between a Binding & Non-Binding death benefit nomination?
A binding death benefit nomination obliges the trustee to pay your benefits to your beneficiaries in amounts and proportions you specify. A non-binding nomination is your opportunity to let your trustee know who you would prefer to take your benefits. However, there is no obligation to follow your wishes.
What is the correct wording to direct my superannuation to my Estate?
To ensure there is no confusion and you would like some or all of your superannuation paid to your Estate, your nomination should state “Legal Personal Representative of My Estate” and the proportion to be paid.
Do not use “Executor” or anything else apart from “Legal Personal Representative of My Estate”; otherwise, that’s a means of contesting the nomination.
It is also imperative that the death benefit nomination is correctly executed and signed by all the relevant parties.
Munro versus Munro – a confirmed case of what could go wrong
Mr Munro was the trustee and member of an SMSF with his second wife (Mrs Munro), and he passed away in August 2011. The executors of his Will were his two daughters from his first marriage and Mrs Munro. After Mr Munro’s death, his stepdaughter (Mrs Munro’s daughter) was appointed as an additional trustee of the SMSF.
Mr Munro’s intention upon his death was that his superannuation benefits be left to his two daughters from his first marriage. However, he had previously executed a binding DBN in September 2009 specifying the beneficiary to receive his superannuation benefits as:
|Trustee of the deceased estate
The court held that the DBN was not a binding nomination as was required by superannuation law and the SMSF’s trust deed, so the trustees were not bound by it. This was because the wording of the nomination was ambiguous. As a result, Mr Munro’s intentions were not fulfilled as Mrs Munro and her daughter could decide how his superannuation benefits would be paid, rather than the benefits being paid to Mr Munro’s biological daughters, as he had intended.
As with all estate planning matters, it is critical that you seek qualified advice and regularly review your plans.
Kreston Stanley Williamson Team
*Correct as of January 2016
*Disclaimer – Kreston Stanley Williamson has produced this article to serve its clients and associates. The information contained in the article is of general comment only and is not intended to be advice on any particular matter. Before acting on any areas in this article, you must seek advice about your circumstances. Liability is limited by a scheme approved under professional standards legislation.