Superannuation, succession planning and your estate plan

Your superannuation and other assets, such as a jointly-owned home, may not be distributed according to your will or your wishes if you do not have the right arrangements in place.

There are four types of nominations in super funds that impact on how your fund is distributed in the event of death:

• a nominated beneficiary
• a binding death benefit nomination
• a reversionary beneficiary
• a beneficiary specified in a trust deed.

If no nomination is made, the super fund trustee can exercise a discretion as to whom to pay or the trustee may specify the payment, and this can be to a person or to the estate.

A nominated beneficiary is merely an indication to the trustee of your wishes, but does not bind the trustee to that nomination.

A binding death benefit nomination and a reversionary nomination can be binding on the trustee, however the person nominated must fall within a definition of a dependant under the superannuation legislation.

A super fund holder can also nominate their benefit to be paid to their estate or representative under a binding death benefit nomination.

The importance of nominations
A recent case decided by the New South Wales Court of Appeal highlights the importance of making a nomination that binds superannuation trustees.

In the case, the deceased had made a non-binding death benefit nomination directing that his super death benefit passed to his son and daughter equally.

As the daughter had been appointed by the deceased as the co-trustee of the super fund, she gained sole control of the fund on her father’s death.

The daughter then appointed her husband as co-trustee and together they directed that her father’s death benefits be paid entirely to themselves with the result that her brother received nothing.

Estate planning
The issues raised in the case above may also apply to your business and need careful succession planning to ensure that your estate is properly distributed on your death, and takes into account a range of income tax, capital gains tax and other implications.

A key to successful succession planning is a well-considered estate plan.

It is not uncommon for families to suffer significant disruption, uncertainty, angst and cost if people die without a will, with an out-of-date will, or with a will that fails to consider assets such as superannuation.

Testamentary trusts
One solution that has significant benefits is a testamentary trust, which is a trust established by your will.

On your death your assets may be transferred to that trust, which is administered in accordance with the terms of your will by a trustee appointed in your will - usually the primary beneficiary or your estate or part of your estate.

A child who is a beneficiary under a testamentary trust will have their share of the estate administered by the trustee, which can be used for maintenance, education etc. Income from the trust used in this way will be taxed at normal rates rather than penalty rates.

An adult beneficiary can hold his or her share of an estate within a testamentary trust and the income from that trust can be streamed to potential beneficiaries in a tax-effective way.

A testamentary trust may also prevent a spendthrift from squandering a benefit and creditors of a bankrupt beneficiary will not have access to the assets left by you to that beneficiary in a testamentary trust.

At the present time, a testamentary trust may protect your beneficiaries if they become involved in a family law dispute.

For more information about your will or estate plan, please email Kells partner David Burrows.