Your Mistress or your Wife?
Who gets your Super when you die?
Binding Nominations
John and Mavis had 8
children (quite a lot these days). Between
them John and Mavis had $1.5 million in a Self
Managed Super Fund. Two
months ago, their oldest son, Jack, asked John and Mavis if he could join
their SMSF. Their Adviser told them that to comply with Super law, Jack
must become a Trustee of the SMSF if he was to become a Member.
Last month, John and Mavis went on a driving tour around Australia.
While crossing the Blue Mountains, John and Mavis were involved in
a head on collision and they were both killed.
Now, John and Mavis had kept their nominated beneficiaries up to
date, and they had nominated all their eight children as beneficiaries.
Unbeknown to them, Jack was not communicating with his brothers and
sisters and had developed a taste for the high life. Without a ‘Binding Nomination’, a Trustee has absolute
discretion in distributing death benefits from the Super Fund. Jack had a free reign over who got Mum and Dad’s Super and
how much of it they got. He
exercised his discretion as the sole Trustee to pay out the $1.5 million
to himself. Bought himself a
new red Ferrari and drove off into the sunset while his parents turned in
their graves and his siblings were left dumbfounded and helpless to stop
him.
When you die the Trustee of your Super Fund decides
on the dependants that receive your Super.
Many people are blissfully unaware that their entire Super and
often their insurance benefits are up for grabs amongst the dependants you
leave behind.
Under Super law, the Trustee of your Super Fund has
the discretion and obligation to use this power.
At this stage you might say to yourself, this does not apply to me
I have nominated my beneficiaries. Are
your bases covered? You
certainly thought so. Are you the next John and Mavis?
The positive side, this power allows the Trustee to
take into account a new spouse or family, if the Superannuation Member
never got around to updating those nomination
forms.
The downfall, this may mean that your “ex” who you never got
around to removing as a nominated beneficiary, may get their hands on your
Super after you have gone and it is too late to argue.
Well now you can overrule their discretion and truly
have the final say about who receives your death benefit. Ensure that your Super is paid, as you want, after your
death. This new Super feature
is called Binding Death Benefit Nominations (Binding Nominations).
You get to remove any uncertainty about who receives
your Super (including insurance amounts) when you die. This means you can nominate exactly who gets what.
This makes your Estate Planning more precise and effective.
Who can I nominate?
You can nominate any of your dependants as defined
under the Super law – i.e. your current spouse (including your defacto)
or your child of any age (including adopted children), or a person
financially dependant on you at the time of your death (your Mother-in-Law
that is living with you). You
can also nominate your Estate (your assets in your Will).
Nominating your Estate, is the most tax effective method of
distributing your assets (see our Manual on Estate Planning).
You can split the benefit between people as long as
you give details of those dependants and the proportional share you want
to go to them.
Only the Nominees who are dependent at the time of
your death can receive your Super.
Must I make a binding nomination?
No. The
decision is yours to make. You
can make a binding nomination at any time prior to your death.
What happens if I don’t make a binding nomination?
The Trustee distributes your benefits amongst your
dependants and your estate in whatever way it believes is fair and
reasonable. This is done
taking into account the nomination you completed on your application form
(remember though they are not bound by your nomination unless you made a
‘Binding Nomination’).
What if I have already named my beneficiary?
Any nominations made before December 1999 are not
binding on the Trustee. The
Trustee continues to take them into account when exercising its
discretion, provided you do not make a ‘Binding Nomination’.
However, if you make a ‘Binding Nomination’ now, you override
any prior death benefit nomination you have made.
Are binding nominations effective forever?
No. Binding nominations are only valid for 3 years. By law your Super
Fund advises you when your nomination is about to expire. You can revoke
or change your nomination at any time by sending your Super Fund a new
binding nomination, which is witnessed by two independent individuals.
This is provided you are of sound mind.
If your Binding Nomination expires and is not properly renewed, your
benefits are paid at the discretion of the trustee of the Superannuation
Fund - just as though you never had a binding nomination.
If you have Self Managed Superannuation Fund then you can go even
further. You can get your tax lawyers to amend the actual trust deed to
say where you want your superannuation to go if you die. This doesn’t need
to be updated. It remains in your trust deed until you change it.
Contact your Superannuation
Fund and ask them whether they allow you to make binding nominations.
All Brett Davies Lawyers’ SMSFs allow for binding nominations and
non-binding nominations. We leave the choice in your hands.
What happens if my nomination is invalid?
If your nomination is
invalid for any reason, e.g. not signed properly, your Super is paid at
the discretion of the Trustee, to either your dependants or your estate.
Is there anything else I should consider?
You may want to consult an
Adviser and a Lawyer to determine any tax and legal implications and to
ensure that you achieve the optimal financial result for your dependants.
In making a binding
nomination, you need to ensure that you have considered the needs of all
your dependants when it comes to distributing your assets.
The Trustee assumes you have made your decision carefully.
It does not consider the need of other dependants who are not
named, as nominees and it does not exercise any discretion.
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