Superannuation does not always form part of your estate, regardless of whether your entitlements are held in an industry fund or a self-managed superannuation fund. Upon your death, your superannuation entitlements will be dealt with according to your death benefit nomination, if you have one in place.
There are different types of death benefit nominations (‘DBN’). A binding DBN is what it sounds like – it is binding on the trustee of the superannuation fund, and the trustee must distribute your entitlements according to the nomination. If you have a non-binding DBN, it may be considered by the trustee when making a determination on how to distribute your entitlements, but they are not bound by it and may pay it to any eligible beneficiary in the proportions they determine fit. If you do not have a DBN, then it is entirely in the trustee’s discretion on how your entitlements will be distributed.
However, whether you have a binding DBN in place or not, a trustee can only distribute your entitlements to particular people, namely your spouse or partner, dependent and adult children, or someone that is otherwise your dependent. If the person who you wish to benefit from your superannuation entitlements does not fall within one of those categories, you can instead nominate for your legal personal representative to be your beneficiary – this means that your superannuation entitlements will be paid into your estate and distributed according to the terms of your Will.
There are circumstances where, despite wanting an eligible beneficiary such as your spouse or adult children to receive your superannuation entitlements upon your death, it may be beneficial to nominate your legal personal representative to receive your superannuation entitlements instead.
One situation may be where you have both minor and adult children. Superannuation entitlements that are paid to adult children are generally taxed while entitlements paid to minor children are not. If your superannuation entitlements are paid to your legal personal representative, then your Will can include a direction that your superannuation entitlements and your estate as a whole is distributed between your children in the most tax effective way, so as to minimise any tax that your adult children may otherwise be required to pay.
Another situation applies to blended families where you may wish for both your children and stepchildren to benefit from your superannuation entitlements. If your spouse dies before you, despite the fact that you were married at the time of their death, their children may no longer be considered your stepchildren for superannuation purposes, depending on your continuing relationship with them. This means that they may not be eligible beneficiaries under a DBN at the time of your death. It is therefore advantageous to have your superannuation entitlements paid to your legal personal representative and then divided between your children and stepchildren pursuant to the terms of your Will, so as to contemplate the intention between yourself and your spouse during your lifetimes.
If you would like to consider your superannuation entitlements and estate planning with one of our estate planning experts, please contact Taurus Legal Management at info@tauruslawyers.com.au or (03) 9481 2000.