All employed Australians working and residing in Australia are required to have superannuation and it is a predominant source of income upon retirement. Despite how central it is to an individual’s lifestyle in their post-work years, it is not commonly understood what happens to your superannuation when you die and how it should be factored into succession planning.
While a person’s assets are generally dealt with under an executed will, superannuation is treated separately as it is not considered part of an estate. The manner to deal with superannuation depends on how it is treated (be it through an industry or retail super fund or self-managed super fund (SMSF)).
This article provides a high-level overview of SMSFs, the documents necessary for effective succession planning, what generally happens to your superannuation when you die and the common mistakes to avoid with respect to your SMSF as part of succession planning.
Daniel Vaughan, MaddocksSMSFs, like retail or industry super funds, are managed by the trustee of the fund. Trustees can be:
Like other super funds, SMSFs have trust deeds that set out the rules of the fund. Trustees are responsible for investment decisions, compliance with the regulatory framework, and even the payment of death benefits.
Superannuation benefits generally do not form part of a member’s estate upon death, and as such are not governed by a will.
Instead, the distribution of death benefits will be governed by the SMSF trust documents, such as:
If there is no binding nomination, the trustee will ultimately have a discretion as to how death benefits are paid, which may be:
In order to ensure that superannuation death benefits are paid to the intended person, members should execute a DBA, BDBN or NBDBN (as appropriate and in accordance with in the Deed).
BDBNs will (and DBAs can) bind a trustee to distribute superannuation death benefits in a particular way. The nominated person may be the ‘legal personal representative’, being the executor or administrator of the member’s estate, so that the benefits can in effect be distributed as part of the estate. Binding nominations or DBAs can remove potential for conflict and complexity for the trustee, who would otherwise be obliged to consider all eligible beneficiaries in good faith before paying out death benefits.
SMSF members should be aware of the following common issues regarding the distribution of death benefits:
For these reasons, it is helpful to ensure that there is a permanent and binding death benefit arrangement when setting up a SMSF. There is no charge for a BDBN or DBA if ordered on SMSF set up with Cleardocs.
For more information, contact Maddocks on (03) 9288 0555 and ask to speak to a member of the Tax & Structure team.
You may also find the following related articles by Maddocks of assistance in relation to your SMSF:
[1]Wan v BT Funds Management Ltd [2022] FCA 302 at [110]-[111].
Qualifications: LLB (Hons), BEc (Hons), Monash University
Leigh is a Partner in Maddocks Tax and Structuring team. Leigh has extensive experience in advising Australian and multinational companies, high net worth individuals, accountants and financial advisers on all areas of taxation law.
Leigh regularly provides advice on:
His advice covers both direct and indirect tax considerations.
Throughout his career, Leigh has been at the forefront in developing tax-effective corporate, trust and superannuation structures.
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