Superannuation and Estate Planning- What Everyone Should Know
JPLegal
For most people, the first substantial asset they will have in their name is their Superannuation. Many of us set it up when we start our first job and then don’t put too much thought into it after that point. Occasionally we will receive a letter from our super fund updating us on the balance or requesting we update our nomination which are quickly tossed to the bottom of the to do list.
Actively reviewing your superannuation often falls into the too-hard-basket for most people, but the truth is that with the right advice, understanding your superannuation entitlement and the way it operates can be quite simple.
A common misconception is that superannuation automatically forms part of your estate upon your death, but in actual fact, what happens with your superannuation when you die is determined by the nominations you make with your superannuation fund. Most retail superannuation funds allow for either non-binding or death benefit nominations.
A non-binding nomination informs the trustees of the super fund as to whom your preferred beneficiaries are however, they are not obligated to follow your preferences.
Binding nominations require the trustee of the superannuation fund to pay out your entitlement to the individual you have nominated on the proviso that the person(s) is considered to be a “valid” nomination. A valid nomination is usually someone who is dependent or interdependent on the holder of the policy.
A common oversight when it comes to making your superannuation nominations is the tax implications of the decisions you make when it comes to nominating the beneficiaries of your policy. For many people this can be overlooked. How tax may impact your beneficiaries will vary from case to case, and it is strongly recommended that you discuss the implications for your specific circumstances with an accountant when making your nomination. In our experience the impact on your beneficiaries can differ greatly and tailored tax advice should always be obtained. An example we see often is how a nomination to minor children differs from a nomination to adult children as they are not dependent which can affect how tax is assessed.
So, perhaps you have someone you would like to receive your superannuation, but they are not financially dependent on you (siblings or your parents) or they are likely to incur tax from the nomination (such as adult children), how do you go about leaving the funds to them without the nomination being declared invalid or the funds being taxed? The answer is through your Will, this is where expert estate planning advice can make a real difference to your beneficiaries.
There are many reasons why you may or may not nominate your estate to receive your superannuation, these reasons are carefully considered in our appointments when we discuss your estate planning goals to ensure you are making thoughtful and educated decisions to achieve what you want.
On occasion, some clients who wish to nominate their estate will nominate their Executor to personally receive their super entitlement however the legally correct nomination must be your legal personal representative to avoid any ambiguity.
When it comes to Superannuation and Estate Planning, the key is to obtain professional legal advice which carefully considers your unique circumstances and goals. There can be significant nomination and tax consequences in the event of a failure to do so.
