31/08/2009

Whether they have one in place or not, most people are well versed in understanding what a Will is and the purpose of making one. They understand that it sets out how they would like their assets to be dealt with when they die.  However, what few people understand is what happens to their superannuation when they die and how a Binding Nomination could help their estate planning goals. This is fairly alarming. 

With the build up of employer contributions, personal contributions and super co-contributions as well as the payment of the proceeds of life insurance policies held inside super funds, a person’s super may well amount to a considerable sum. 

 

Who is entitled to your Super?

 

Superannuation benefits do not automatically form part of the group of assets distributed under the terms of a person’s Will.

 

Under superannuation legislation, the trustee may pay the benefit to either the deceased person’s executor or directly to the deceased member’s dependants (or a combination of both).

 

The following people are classified as “dependants”:

1.     a spouse (including a de facto spouse, but not a divorced spouse);

2.     a child (including an adult, adopted or step child);

3.     a person who was in an interdependency relationship with the member at the time of death of the member (this relationship generally requires (amongst other things) the two people to have lived together and may cover a same-sex relationship).

 

Provided the recipient is either a dependant (as listed above) or the executor of the person’s estate, the trustee will ordinarily have the ultimate say in who the benefit will be paid to.

 

This may pose some problems. 

 

Firstly, the trustee may not pay the benefit to the person or persons the member would have liked the benefits paid to.  Secondly, it may be more tax effective to have the benefits paid to one particular dependant than another.  Thirdly, allowing the trustee to have this discretion may not sit well with the person’s overall estate planning goals. 

 

How can you control the trustee’s decision?

Using Binding Nominations

 

Most fund trust deeds (though not all) allow members to give the trustee instructions as to how the member would like the trustee to pay out the member’s benefit on death. 

 

Where the deed allows the member to make his or her instructions binding on the Trustee (that is, the trustee must pay the benefit as set out in the instruction), the instruction is called a “Binding Nomination”. Some deeds also allow a member to provide the trustee with a “Non-Binding Nomination”, in which case the trustee may consider the instruction but is not bound by it.

 

Binding Nominations can be a very useful tool in giving effect to a person’s estate planning wishes provided they are properly prepared so as to be legally binding on the trustee.  Different rules apply to the form the Binding Nomination must take to be valid.  Also the rules relating to the duration of a valid Binding Nomination differ according to whether it is a self managed fund or not and the terms of the trust deed.

 

The Binding Nomination will only bind the trustee if the person/s nominated for payment is someone the trustee is allowed to pay under the legislation (ie the estate executor or a dependant). 

 

If you would like to discuss whether a Binding Nomination is an appropriate option for you or to discuss your estate planning goals, please contact TOWNSENDS BUSINESS & CORPORATE LAWYERS on (02) 8296 6222.