Picture this: You have a house worth about half a million, plus superannuation worth about half a million, including all life insurance policies. That’s a million dollars you can give to beneficiaries via your Will, wouldn’t you think?
Not so fast! We’ve previously explained that depending on how your property is held land may or may not go according to your Will.
You may be surprised, however, to know that superannuation death benefits may also very well not go according to your Will. This includes the closing balance of your superannuation account at the time of death as well as any insurance policies you may have in place via your superannuation.
Unless you have a valid binding nomination in place, superannuation death benefits go according to the discretion of your superannuation trustee. While they cannot pay the death benefits other than in accordance with the trust deed, normally this will enable them to pay it to any of your dependants at their discretion.
Given superannuation balances are often an individual’s largest asset on death apart from real estate, this situation can create significant anomalies.
For example, while you may have carefully provided for those you care about in your Will, the superannuation trustee can bypasses this and chooses a different distribution method.
Even worse, it can result in unintended very inequitable distributions. Think about this scenario– your Will splits your estate equally between your two children. When you die one of them is under 18 and the other is independent. Your superannuation trustee may decide (in their wisdom) to pay the majority of the superannuation death benefit to your minor child.
If you then split your remaining assets via your estate equally, your children will receive very unequal amounts, which may not be what you intended at all. In fact, if your superannuation was your major asset, your younger child may well receive the vast majority of your estate while your older child could almost completely miss out.
A careful lawyer drafting your Will could avoid this outcome by utilising an equalisation clause – essentially ensuring that what is gifted via the Will is reduced by any monies received via superannuation death benefits.
In some cases it may be wise to make a binding nomination that your superannuation death benefit be paid into the estate, to be distributed according to your Will. In this case, however, your Will needs to be very carefully drafted to ensure there are no unwanted adverse tax implications, as in some cases superannuation death benefits can be subjected to tax (this is the subject for a whole different article).
In yet other cases, however, it may make better sense from an estate planning and taxation point of view to have a binding nomination to another dependant, and then ensure your Will is drafted with this in mind.
The above are only a very few examples of how superannuation death benefits provide unique and unusual issues for estate planning. When your Will is drafted it is important that the interaction with your superannuation death benefits are carefully considered.