Want total control of your legacy? Extra steps are required to secure your super. Photo: PeopleImages.
Many people think their will is the final word on their legacy, but in reality, your largest or second-largest asset – your superannuation – exists in a parallel legal universe where your will has zero authority, unless you build a bridge between them.
DDCS Lawyers special counsel Daniel Ravenscroft Paterson, an expert on wills, estates and business succession, says it’s an easy mistake to make.
“A lot of people think of super as an asset in the same vein as another bank account, something that’s automatically treated as a personal asset,” he says.
By default, your super balance sits in a separate legal framework managed by the fund’s trustee and governed by two things – superannuation law (the SIS Act) and the fund’s rules.
When you die, assets in your estate held solely in your name pass in accordance with your wishes under your will. On the other hand, your superannuation death benefit distribution will need to comply with the SIS Act and your fund’s rules.
Here, beneficiaries are limited to eligible dependents only, such as a spouse or child, or your legal personal representative. You will normally be asked to nominate who receives your death benefits from this list and these death benefit nomination forms can work as the will for your super fund.
If you do not leave a valid nomination, your superfund’s trustee may have the discretion to make the final call on which eligible dependents get your benefits.
But if you’re thinking, “it’s my money, why should a trustee decide who gets it?”, there are steps you can take to assume control.
The first thing to know is that a simple direction in your will won’t suffice.
“Some people fall into that mistake and they think they can put a direction in their will that says ‘I want my superannuation death benefits to go to this person’,” Daniel says. “But the only thing that overrides the trustee’s discretion is a complying death benefit nomination.”
A binding nomination with your super provider effectively passes your death benefit to your estate, to be distributed in accordance with your will.
“That’s especially important if you have more complex plans for your super, for instance, you want grandchildren included as beneficiaries and not just children,” Daniel says.
DDCS wills, estates and business succession expert Daniel Ravenscroft Paterson says many people don’t realise their superannuation isn’t handled as part of their estate. Photo: DDCS.
It’s important to note the important difference between a binding nomination and a non-binding one – it’s all in the name. A trustee must follow the instructions laid out in a binding nomination, while a non-binding nomination is more like “an expression of a wish”.
“It is persuasive and a trustee will follow it as a guide, but they’ll make the final decision themselves,” Daniel says. “There is some risk that a decision could be made contrary to your wishes.”
It’s equally important to note that a binding nomination is not always set-and-forget; some funds only allow lapsing nominations that must be renewed, usually every three years.
“Often you’ll get a superannuation provider providing a reminder, but if you miss that reminder, don’t assume they’ll chase you up,” Daniel warns.
The three-year sunset clause on binding nominations creates a precarious window. If you lose decision-making capacity and your nomination lapses, you can no longer legally renew it yourself.
The solution lies in a robust Enduring Power of Attorney.
“You want to make sure that you’ve appointed someone you trust to act on your behalf on financial and property matters,” he says. “You need to check specifically to see if the fund rules allow an attorney to renew a lapsing nomination on your behalf.”
For those seeking maximum control, a Self-Managed Super Fund (SMSF) offers a level of flexibility that large industry or retail funds cannot match, as it effectively allows you to be the trustee.
“You can update the rules of your fund to let you make binding or non-binding nominations as needed,” he says. “There is more flexibility involved, but also more responsibility to stay on top of everything.”
Ultimately, your superannuation death benefit requires maintenance, whether it’s creating and renewing a binding nomination, appointing a Power of Attorney or moving to a more flexible fund structure.
For more information, visit DDCS.