It’s important to know that the lump of money you have in superannuation is not the same as other assets. A recent decision by the Superannuation Complaints Tribunal (SCT), upheld by the Federal Court of Australia has highlights the importance of understanding that superannuation is not necessarily treated as an asset of an estate – which means that a Will can’t take care of passing on the assets in a superannuation fund unless the Trustee of the fund actually pays the money to the executor after death of the member. Stock (as Executor of the Will of Mandie, Deceased) v N.M. Superannuation Proprietary Limited [2015] FCA 612 reinforces just how critical it is for individuals to make sure they have a valid and up-to-date binding death benefit nomination if they want to direct payments of superannuation death benefits to someone specific. In the Mandie case, with no BDBN in place when the client (Mandie) died, the trustee exercised discretion and paid the death benefits between three surviving dependants – two sons and a daughter – all adults. The executor of the client’s Will applied to Superannuation Complaints Tribunal (SCT) to challenge the trustee’s decision. The executor argued that an earlier settlement agreement between Mandie and his sons limited them from gaining any further benefit from his estate, and that because there was no binding death benefit nomination, the death benefits should be paid to the estate (and then distributed according to the Will). The SCT disagreed. It held that the payment to the adult children of the deceased was within the trustee’s discretion because its decision only had to be made on grounds that were fair and reasonable in the circumstances. Points raised included:
Superannuation is not an asset of the estate and the trustee does not have to follow the directions about it in a Will – no matter how specific the directions might be
While the trustee will take into account the Will – and any other document that gives directions about the wishes of the deceased, the role of the trustee in the distribution of a death benefit is not to resolve any estate-related issues
Without a binding death benefit nomination, the trustee must decide the distribution of a death benefit. In Mandie’s case, there was no binding death benefit nomination
In general, a trustee only pays the death benefits to the legal personal representative if there are no dependants or there is a direction in a binding death benefit nomination
Timing is important. While Mandie may have been eligible to receive the benefit, the benefit remained in the superannuation system at the time of his death and so became the responsibility of the trustee.
The SCT concluded that since there was no good reason to give one of the adult children more than any other, it was fair for the trustee to decide to divide the benefit equally between the three as non-financial dependants (that is, non-tax dependants). The Federal Court of Australia upheld the SCT decision.
It goes without saying that advice around your estate plan needs to account for all factors some which like this matter fall outside the confines of a will.