Tuesday, January 31, 2012

Superannuation death benefits

The way in which members of a super fund can direct payment of benefits on death come up in virtually every estate planning exercise.

Essentially a member of a superannuation fund has three main choices for specifying what should happen in relation to their superannuation entitlements on death (assuming the proposed recipient is entitled at law), namely:

1. no nomination - the trustee is bound to deal with a member’s benefit in their best interests. The trustee will normally make enquiries as to the member’s family situation, who their dependants are, the provisions of their will and other relevant circumstances before making a decision;

2. a non-binding nomination - the trustee is not bound by a non binding notice and has an absolute discretion as to where the death benefit will be paid. Where a non binding notice is made, it should be taken into account as part of any decision by the trustee as to how to distribute the benefit; or

3. a binding nomination - the trustee is obliged to distribute a member’s death benefits in accordance with a valid binding notice.

Binding nominations have the potential to allow members to protect their death benefits from disputes, as where there is no nomination or a non binding one, a trustee's decison can be challeneged. Binding nominations can also be used as part of a member’s overall estate plan, including, for example, as part of a tax planning strategy for infant children or an asset protection strategy for adult children.

In future posts we will look at other aspects of binding nominations, including non lapsing nominations.

Until next week.