Your superannuation balance and any insurance benefits are not automatically covered by your Will. Your Will only ever becomes relevant for your super benefit if the trustee of your fund pays the benefit to your estate.
When you die, your super must be paid out to someone. For most people, this would be paid to your spouse, children or estate (see our article here for more information).
While they can only pay your super to one of these "allowed" beneficiaries, the trustee of your fund is responsible for deciding who gets your super when you die. Even if your Will says that your super is to go to a particular beneficiary, that will only be relevant if the trustee of your fund pays the benefit to your estate.
There are steps you can take to guide or instruct the trustee of your SMSF on how to deal with your superannuation on your death:
- A non-binding death benefit notice
This is an expression of your wishes and is not legally binding on the trustee. It could be a letter or minute (notes taken at a meeting of the SMSF trustees) saying what you'd like to happen in the event of your death.
- A binding death benefit notice
If the trustee is given a valid binding death benefit notice, they are required to follow your instructions.
- A reversionary pension
If you are drawing your super as a pension when you die, you can structure that pension so that it automatically continues to someone else when you die. Generally, this would only be possible if you wanted the pension to continue to your spouse. Providing the trust deed of your fund stipulates that trustees must treat reversionary pensions as binding, this is just like a binding death benefit notice for your pension.
People often use binding death benefit notices or reversionary pensions when they want to be absolutely sure that the trustee will pay their super in accordance with their instructions when they die. It is quite common to have these things in public super funds where the trustee is a complete stranger. They are less common in SMSFs because the remaining trustee (who will make all the decisions about your super when you die) is often your spouse or the executor of your estate. SMSF members are sometimes quite comfortable leaving these people with the flexibility to deal with the death benefit in whatever way is most beneficial for the family at the time.
One time when binding death benefits are often used is when the member wants to make sure their super will be paid to their estate when they die – so that it will fall under their Will.
If you put a binding death benefit notice in place, remember, it is a very powerful document. It is effectively a Will for your superannuation which is one of your largest financial assets. Even if your super balance isn't very large yet, remember that it will include any life insurance that is paid when you die.
How can Heffron help you?
We recommend getting professional advice before putting a binding death benefit nomination in place and we would be happy to refer you to a qualified estate planning lawyer.
If we look after your SMSF and you have already decided how you want your binding death benefit notice to be structured, we can provide you with a suitable notice if your fund is using the latest version of our trust deed.
Who is this recommended for?
|Death Benefit Nominations – Binding and Non-Binding
Heffron provides death benefit nomination templates for all clients on the most recent version of the Heffron trust deed. To request a template, please contact firstname.lastname@example.org
For funds not on the latest deed, we cannot provide a template. You will need to either arrange one with your own lawyer or update your trust deed to our latest rules.
If you need anything please don't hesitate to contact us.