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Where Will Your Super Go When You're Gone?
While we might prefer not to think about our death, most of us want to be sure that when the time comes, we have ome control over who gets what.
But here's the twist; like so many things in life, it all comes down to the paperwork.
Two recent SMSF estate planning cases illustrate the importance of having the correct paperwork in place to ensure your wishes are adhered to.
In the first case, a woman passed away leaving express instructions in her Will that her benefits within her SMSF should be paid to her adult children and not to her estranged husband. As the other trustee of the fund, her husband ignored these wishes and paid the benefits to himself.
The court decided he acted within his rights as there was no Binding Death Benefit Nomination (BDBN) in place within the fund. Consequently, the children received nothing, despite the explicit wishes of their mother.
An important factor in this first case is the fact that many people don't realise that their Will doesn't necessarily cover superannuation benefits and assume that they simply form part of their estate, which is not automatically the case. And therein lies the problem.
In the second case, a man died with a BDBN in place to his adult children from his first marriage. His wife chose to ignore the BDBN and paid the benefits to herself after receiving advice that the BDBN was invalid.
The court found that the BDBN was in fact valid and that, as the husband's balance had been depleted from legal fees, the wife's balance was able to be used to pay the children the benefits they were entitled to.
The Courts have made it clear that where the trustee of a SMSF deals with a deceased's superannuation benefits inconsistently with a BDBN, the trustee will be liable to make good the payment that should have occurred under the BDBN, plus interest.
So the key messages we should all take from these cases are:
- Make sure you understand who controls your fund on your death. This will be determined by your Trust Deed, the Constitution of your corporate trustee and other nominations you may have in place. - Superannuation does not form part of your estate unless you specifically direct your benefits to your estate to be then dealt with by your Will. - Make sure the lawyer drafting your Will understands how your SMSF benefits will interact with your Will. - Contemplate the various scenarios regarding control of the fund in the case of blended families. - Contemplate the worst case scenario of both members dying simultaneously - what happens in your SMSF? - Make use of an effective BDBN that considers the worst case scenario above.
Please don't hesitate to contact a member of the Super team to discuss any of your SMSF estate planning queries.