Superannuation and Estate Planning: Why it matters for your legacy.

Superannuation is often one of the largest assets individuals hold, yet it is frequently overlooked in estate planning. Including it in your strategy is crucial to ensure your wealth is distributed as intended. Here's why superannuation should be a key consideration and the steps you can take to protect this valuable asset.

Should Superannuation Be Addressed in Estate Planning Documents?

Superannuation is not automatically covered by your will. Instead, it is managed under the rules of your superannuation fund or in accordance with any binding death benefit nominations (BDBNs) you have made. To align your superannuation with your broader estate plan, it’s important to address it specifically in your estate planning documents, such as a will.

Why Is Superannuation Important in Estate Planning?

Superannuation plays a significant role for several reasons:

  • Substantial Value: For many, it forms a large part of their overall wealth.

  • Beneficiary Protection: Proper planning ensures benefits go to the intended recipients.

  • Tax Efficiency: Superannuation offers unique tax advantages, especially when distributing death benefits.

The Role of Binding Death Benefit Nominations (BDBNs)

A BDBN is a legal instruction submitted to your superannuation fund, directing how your death benefits should be distributed. Without a valid BDBN, the trustee of your fund may decide how to distribute your benefits, which could lead to unintended outcomes.

Key Benefits of a BDBN:

  • Ensures super benefits are distributed according to your wishes.

  • Reduces the likelihood of disputes among family members.

  • Complements your broader estate planning strategies.

Types of Death Benefit Nominations

1. Binding Death Benefit Nominations (BDBNs): A legally enforceable instruction requiring the trustee to distribute your benefits as specified.

  • Certainty: Ensures benefits are allocated exactly as you intend.

  • Validity: Must be signed, witnessed, and typically renewed every three years (unless non-lapsing).

  • Eligibility: Only dependents (e.g., spouse, children, or financial dependents) or your legal personal representative can be nominated.

2. Non-Binding Death Benefit Nominations: A suggestion to the trustee, who retains discretion to consider other factors when distributing benefits.

  • Flexibility: Allows the trustee to adapt based on changing circumstances.

  • Uncertainty: No guarantee your preferences will be followed precisely.

Lapsing vs. Non-Lapsing Nominations

When you make a death benefit nomination, you also need to understand whether it is lapsing or non-lapsing:

  • Lapsing Nominations:
    These typically expire after three years. You need to review and renew them regularly to ensure they remain valid. If you don’t renew a lapsing BDBN, it will no longer be binding, and your super fund’s trustee will decide how to distribute your benefit.

  • Non-Lapsing Nominations:
    These do not expire and remain in place until you change or revoke them. While this provides long-term certainty, it’s important to review non-lapsing nominations periodically to ensure they still reflect your current wishes and circumstances.

Superannuation in Your Will

Superannuation can be incorporated into your Will, but there are advantages and risks to consider:

Benefits:

  • Control: You can align your super distribution with the rest of your estate, providing a unified approach.

  • Flexibility: Allows for tailored conditions, such as directing your superannuation death benefit into a testamentary trust(s), offering tax and asset protection benefits.

Risks:

  • Delays: The probate process might delay access to the superannuation death benefit that is distributed through your will.

  • Potential Claims: If there are any claims made against your estate after your death, your superannuation death benefits may be exposed and may be reduced in order to settle this claim.

Leaving Distribution to the Superfund Trustee:

Benefits:

  • Speed: The superannuation death benefit can often be paid directly to the nominated beneficiaries (as stated in your BDBN), bypassing the probate process.

  • Protection: Superannuation death benefits remain within the superannuation system, potentially offering protection from creditors or claimants on your estate.

Risks:

  • Limited Control: The trustee will decide how superannuation death benefits are distributed based on fund rules or their discretion if no BDBN is in place.

  • Potential Misallocation: Without clear instructions, the benefits might not go to the intended beneficiaries.

Tax Considerations

Distributions to dependents (e.g., spouses or minor children) are usually tax-free, while payments to non-dependents may be subject to tax. Consulting a professional for tax advice is recommended.

Estate Essentials and Superannuation

At Estate Essentials, our wills—including both the Core Will and our Testamentary Trust Wills—are designed to address your superannuation. These wills include clauses that distribute your superannuation death benefits in the same manner as your residuary estate, ensuring consistency and alignment with your overall estate planning goals.

Plan for Your Superannuation Wisely

Superannuation is an integral part of estate planning and should not be overlooked. Thoughtful strategies, such as BDBNs and tailored will provisions, can ensure your superannuation benefits are protected and distributed according to your wishes. Proactive planning provides peace of mind for you and financial security for your loved ones

Ready to start planning? Estate Essentials can help you create a comprehensive will that includes your superannuation considerations. Click here to see our range of Will options.

Disclaimer: The information provided in this article is general in nature and does not constitute legal advice. Estate Essentials is not a law firm and does not provide legal services. While we strive to provide accurate and up-to-date information, it may not apply to your specific circumstances or address all potential issues. We strongly recommend consulting an independent legal professional to ensure your estate planning documents meet your unique requirements.