As the New Year commences, it is a great opportunity to take stock of your affairs and make sure important tasks are complete. If not already on your list – add “Check Death Benefit Nomination” for your superannuation.
For many Australians, superannuation is not something often dwelled upon. It sits comfortably in the background – a reassuring ‘nest egg’ that doesn’t require much attention. However, when is the last time you checked your beneficiary nomination?
Sadly, we see all too often when a person dies that they have not updated their beneficiary nomination with their superannuation fund, and this can cause unintended stress for those left behind. Here are some recent examples:
Case Study One
A young mum sadly passed away at age 35, leaving her husband with a 5 year old son and 18 month old daughter. She had updated her superannuation death benefit two and a half years earlier, nominating for it to be binding on the trustee of the Fund. The death benefit stated that the benefit must be paid 50% to her husband and 50% to her son. All of her other assets were jointly owned with her husband and passed to him by survivorship.
Being a ‘binding’ nomination meant that the Fund had no discretion to pay the superannuation death benefit (which included a life insurance component of $300,000) in a different way – it had to pass equally between the husband and the son. This meant that the daughter would not be entitled to any of the proceeds from the superannuation fund. It also meant that the husband could not use the son’s 50% share to help pay off the home mortgage, or to subsidise his wage so that he could spend more time at home with the young children. The Fund, in this situation, was also insisting that a trust must be created for the minor child, and would only pay the death benefit into the trust – not to the father directly.
If the member had checked her nomination at the start of every year, she could have made sure that she updated it to reflect her intentions. Even better, if she had legal advice, she may have been prompted to think more carefully about the impact on her husband of leaving money directly to the children while they were so young.
Case Study Two
A young man passed away with a superannuation beneficiary nomination naming his mother. He had no Will, and a girlfriend who had been living with him in a rental property for 10 months prior to his death.
The Fund did not recognise a parent to qualify as a person who is eligible to receive death benefits directly from superannuation. The death benefits were paid to the Estate of the young man. His girlfriend made an application to administer his Estate, as his domestic partner. The Victorian intestacy rules provided that 100% of his Estate would pass to his domestic partner, so his mother did not receive any of the money.
If the young man had regularly updated his nomination, it is possible he may have changed the beneficiary to his girlfriend, and there would have been less tension between the mother and girlfriend about the fact that the girlfriend had kept the full benefit of the funds. Even better, had he talked to a lawyer about his estate planning, he may have been advised that the death benefit nomination would fail, and he would need to include his mother in his Will if he wanted to make sure that she received a financial benefit on his death.
Case Study Three
An elderly man passed away without nominating a beneficiary of his superannuation with his Fund. He left a surviving wife, and an adult daughter from a previous relationship. He had always held the bank accounts, house, and all services in his sole name.
The superannuation fund had the option to pay the death benefits to the wife, the daughter, the man’s estate or a combination of all 3 of these options. The wife and daughter each submitted a claim for financial provision from his Estate, and the trustee of the superannuation fund decided to pay the death benefits to the Estate, so that the outcome could be decided by his Will or by way of the Estate challenges. The wife had to wait for a Grant of Probate to be issued (which generally takes around 3 months from the date of death) before the superannuation was paid to the Estate. Thankfully, in this case the wife was the Executor and beneficiary of the Estate, and the daughter did not challenge the Will. However, if there had been any claim, or a hold up with the administration of the Estate, it could have been a very long time before she was able to access any of the funds. Even in this case, the 3 - 4 month wait was extremely stressful for the widow.
If the husband had made a death benefit nomination, and made it binding on the trustee of the superannuation fund, the funds could have been paid out to his widow within 30 days of the death certificate being forwarded to the fund.
Unfortunately, these are but a few of the issues we have observed in the course of assisting with estate administration when the deceased has not given due attention to the importance of their estate plan – particularly, in these cases, their superannuation death benefits. Other common examples include nominations that have lapsed (many people are not aware that their fund requires the nomination to be updated every 3 years), or nominations for self managed funds that do not comply with the form required by the deed.