Superannuation

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Superannuation is often one of the largest assets Australians accumulate throughout their lives, yet many people are unaware that it does not automatically form part of their estate when they pass away. Instead, superannuation death benefits are handled separately from your Will, and without the right documentation in place, your superannuation may not go to the people you intend to benefit.

A key document that helps ensure your superannuation is distributed according to your wishes is a Binding Death Benefit Nomination (BDBN). Here’s what happens if you don’t have one in place and the consequences this can have on your loved ones.

A Binding Death Benefit Nomination is a legal instruction to your superannuation fund, specifying who should receive your superannuation death benefits when you pass away. It gives you the power to direct your superannuation to specific beneficiaries, such as your spouse, children, or other financial dependents.

When a BDBN is in place and valid, the trustee of your superannuation fund is required to follow your instructions, ensuring that your nominated beneficiaries receive your superannuation benefits. However, if there is no BDBN, or if it has lapsed, the trustee will have discretion over how your benefits are distributed.

Without a Binding Death Benefit Nomination, the trustee of your superannuation fund is not obligated to follow any informal instructions, such as your Will or verbal wishes. Instead, the trustee will use their discretion to determine who should receive your death benefits.

Trustees typically follow a legislated hierarchy, giving priority to your dependents, which usually includes your spouse and children. However, this process can be complicated if you have a blended family, dependents from previous relationships, or other individuals you would like to benefit. Trustees may also consider factors like who was financially dependent on you at the time of your death, potentially leading to outcomes that don’t align with your intentions.

One of the most significant issues that can arise without a BDBN is the potential for delays and disputes. The trustee will take time to gather information, assess your relationships, and review who was dependent on you, which can result in lengthy delays before your superannuation benefits are distributed. During this time, your loved ones may be left without the financial support they need, particularly if they were counting on these benefits for living expenses or debts.

Without a BDBN, there’s also a higher risk of disputes among family members. For example, if you have children from multiple relationships, there may be disagreements about who is entitled to your superannuation benefits. These disputes can lead to legal challenges, creating further delays, additional legal costs, and emotional strain for your family.

Many people mistakenly believe that if they don’t nominate anyone to receive their superannuation, the benefits will automatically be paid into their estate and distributed according to their Will. This is not the case unless your superannuation fund’s rules allow for it, or you have specifically nominated your estate (also called a ‘Legal Personal Representative’) as the beneficiary of your superannuation through a Binding Death Benefit Nomination.

Without such a nomination, the trustee may decide to pay your benefits directly to one or more of your dependents, bypassing your Will altogether. This can result in unintended consequences, such as certain family members receiving more or less than you had intended.

Another important factor to consider is the tax treatment of your superannuation death benefits. The way superannuation is taxed depends on the relationship between you and your beneficiaries, as well as whether they are considered dependents for tax purposes.

If your superannuation is paid to non-dependents, such as adult children, they may be subject to higher tax rates on the death benefit. Without a Binding Death Benefit Nomination in place, you lose the ability to control who receives the benefit and, as a result, how much tax they will need to pay. This could lead to your beneficiaries receiving significantly less than expected, which could have been avoided with a valid BDBN.

If you have a blended family, are in a de facto relationship, or have non-traditional dependents, a Binding Death Benefit Nomination becomes even more critical. Without clear instructions, the trustee may not recognise or prioritise individuals you consider important. This is particularly relevant if you are estranged from certain family members or want to ensure that a partner or friend receives part of your superannuation.

The absence of a BDBN can create an environment where misunderstandings or conflict arise, causing distress for those closest to you. It also opens the door for people to dispute the trustee’s decisions, potentially dragging your loved ones into lengthy legal battles over your superannuation.

Without a Binding Death Benefit Nomination in place, the distribution of your superannuation benefits is uncertain, potentially leading to delays, disputes, and unintended outcomes. By ensuring you have a valid BDBN, you take control of how your superannuation will be distributed, providing peace of mind that your loved ones will be looked after in line with your wishes.

At Your Legacy Lawyer, we understand the complexities of superannuation and estate planning. Let us guide you through the process of setting up a comprehensive estate plan, including a Binding Death Benefit Nomination, so that your superannuation is protected and your legacy is secure.