Will, probate. superannuation

Wills and Estates 101 – Superannuation death benefits

03 June 2020

In the third of our Wills and Estates 101 series we speak with Rigby Cooke Lawyers Wills, Trusts and Estates practice lead, Rachael Grabovic, to answer questions around Superannuation death benefits.

Firstly, what is a superannuation death benefit?

A superannuation death benefit is a payment made to a superannuation dependent beneficiary or to the legal representative of a deceased person’s estate.

The team frequently comes across situations where a deceased does not have a valid Binding or Non-Binding Death Benefit Nomination in place. Without this, the Trustee of your Super Fund has the power to determine who will receive your super on your death. In our experience this leads to emotional distress and in some circumstances a court room. Reviewing your superannuation is an important aspect of Estate Planning and should not be done in isolation. The law governing superannuation is strict and can impact upon who you can leave your super death benefits to. For example, parents, siblings and grandchildren do not automatically qualify.

A death benefit nomination is a legal document and must not only comply with the law it must also comply with the terms of the superannuation trust deed. If the nomination does not comply with the rules of the trust deed you may find the nomination fails and the appointed trustee having sole discretion as to who will receive your death benefit.

Managing your own self-managed superannuation fund (SMSF) brings with it further estate planning issues. In addition to contemplating who will be entitled to receive your superannuation death benefit on your death, you must also consider who will take control of your fund if you were to lose capacity or die. The issue of control has become a very important aspect of estate planning with recent cases being disputed in the Courts; lawyers being the only winners.

The most recent case Wareham v Marsella [2020] VSCA 92 discusses the importance of trustees of a SMSF exercising its discretion when paying a death benefit with real and genuine consideration; ensuring the exercise of discretion is not in bad faith.

There is also a fiduciary relationship between the trustee of a trust and the beneficiaries, and for the purposes of a SMSF the concept of beneficiary extends to the potential death benefit recipients.

What does this mean?

The trustee is forbidden from making decisions which is a conflict of interest and duty, and is not authorised to profit from its position, property of the trust or from confidential information (Breen v Williams (1996) 186 CLR 71). There is an exception to the “no conflict” rule which has been recognised in Mordecai v Mordecai (1988) 12 NSWLR 58 which may extend to superannuation funds.

But even if the trustee is able to overcome the conflict rule the risk remains, if any potential decision to pay the death benefit does not give “real and genuine consideration” to the competing interest of all prospective beneficiaries of the death benefit, the trustee will be in breach of its fiduciary duties.

To mitigate any risk that your estate plan can be overturned it is important to obtain specific legal advice for your particular situation.

Rigby Cooke’s Wills, Trusts and Estates team is well placed to assist you should you have any concerns or questions with regard to the payment of a superannuation death benefit, preparation of valid death benefit nominations, agreements etc. or more generally trust advice.

Disclaimer: This publication contains comments of a general nature only and is provided as an information service. It is not intended to be relied upon as, nor is it a substitute for specific professional advice. No responsibility can be accepted by Rigby Cooke Lawyers or the authors for loss occasioned to any person doing anything as a result of any material in this publication.

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