Would you change super funds just for a better death benefit nomination?

05/07/2018

A death benefit nomination is as important to your super assets as your Will is to your assets outside super.  So why do we accept second-best when it comes to the drafting of death benefit nominations? And should we change funds if our current fund can’t provide what we want when it comes to death benefit nominations?

Marge is concerned about what is going to happen to her super.  

She has been reading her Will and understands that she is giving everything in her estate to her husband Homer; but if he dies before her then her Will sets out what will happen next.  Now she’s reading her superannuation binding death benefit nomination and all it says is ‘100% to Homer’.  

Her financial adviser told her that she needed to make this nomination so she could be sure about her super and because if there is no binding nomination then the trustee of her fund makes the decision.  She doesn’t want that!

But what if Homer dies first, what then? Will her super go to Bart, Lisa and Maggie equally?  Bart’s ‘a bit of a lad’, Lisa’s ‘alternative’ and Maggie’s health is not good so how would the trustee decide who to give her super to and in what proportions?

Marge has good reason to be concerned about what is going to happen to her super.

A death benefit nomination is as important to your super assets as your Will is to your assets outside super.  So why do we accept second-best when it comes to the drafting of death benefit nominations? And should we change funds if our current fund can’t provide what we want when it comes to death benefit nominations?

Decisions about death benefit nominations should be taken only as part of your estate planning and not simply to complete a procedural exercise dictated by a checklist of compliance items when creating or reviewing your superannuation interests.

Provided they meet the technical requirements of the trust deed and any applicable legislation, binding death benefit nominations can be tailored to meet the estate planning needs of you and your family.  Although nominations can be more flexible in self managed superannuation there is no reason that an APRA fund cannot offer material flexibility for the drafting of a binding death benefit nomination.

Dovetailing a superannuation death benefit nomination with your Will is about

•    streaming the super and non-super inheritance to the beneficiaries who can receive them in the most tax-effective manner, and
•    dealing with contingencies.

For example, Bart will likely cease to be a death benefit dependent (by leaving home or turning 25) earlier than Maggie who is 10 years younger. The binding death benefit nomination should take account of that change through appropriate drafting.

Or if Marge is concerned that Homer might spend her super at the TAB after her death she could provide him with a non-commutable pension so as to protect the capital.

The problem with estate planning is that it deals with something that’s unknowable – the future.  The only way estate planning can be effective is by understanding the different things that might happen and dealing with each of them.  

Dealing with those contingencies is all about making the necessary decisions and working out how the different scenarios affect those decisions. A tailored binding death benefit nomination is an ideal way to achieve this in respect of your super assets and indeed as part of your total estate plan.

So if tailoring your death benefit nomination is so important, why do we not demand that APRA funds permit much more sophisticated death benefit nominations and don’t simply allow us to appoint our spouse?

And we haven’t even mentioned the 3-year lapsing rule that poorly drafted APRA fund deeds must comply with.  That rule requires your death benefit nomination to be refreshed every 3 years – try putting that into your Outlook calendar! The potential for the nomination to lapse without the member realising has already led to a number of court cases and a number of very unhappy family members who missed out on what they thought the member was going to give them.

There is no reason that a member of a super fund should accept second-best when it comes to the quality of their death benefit nomination and you should think seriously about moving either to another APRA fund or even to a self managed super fund (for all or perhaps part of your superannuation) so that you can have a much more tailored death benefit nomination as part of your estate planning.

For further information, please contact Townsends Business & Corporate Lawyers on (02) 8296 6222 or info@townsendslaw.com.au to see how we can assist.