How does Superannuation and estate planning work?
Superannuation and planning your estate go hand in hand. It works together. Here are some key points to be aware of:
• Superannuation is becoming a much bigger part of estate planning – just as important your will.
• Not just superannuation. Most superannuation funds now offer life insurance and other benefits.
Superannuation entitlements can now be several hundred thousand dollars.
1. Superannuation does not automatically form part of your estate. It is dealt with in accordance with the terms of the Fund. This creates estate-planning opportunities.
2. You must check your Super fund policy to see if it allows:
• Binding nominations – bind the Super fund
• Lapse after 3 years
• If invalid does not bind the Super fund
• Non-binding nominations – Super fund may decide to whom your superannuation is paid.
3. You can only pay your superannuation to the following persons:
• Dependants as defined under the Superannuation Industry (Supervision) Act
• Spouse, partner, children
• Those in an interdependent relationship – must be financially dependent.
• Your estate
4. Note there is a difference between the definitions of dependants under superannuation legislation and tax legislation. A large part of considering superannuation is taking into account tax consequences.
• If payable to spouse no tax
• If payable to child under 18 no tax
• If payable to child over 18 likely to be tax (because not a tax dependant)
• If payable to your estate to go into a discretionary trust for spouse or child (even if under 18) – tax
5. Superannuation and estate planning:
• Because separate to your estate no claim can be made if a binding nomination made to person other than your estate
• Can pay superannuation in tax effective way and have equalization clauses in your Will.
6. You must keep your Superannuation and Estate Planning up to date
• If you pass without a Superannuation nomination or a Will, your superannuation could pass to your children and spouse and not your spouse – this happened to a client of our recently.
7. Self Managed Super Fund (SMSF) – all the above applies but you must also deal with Control of the SMSF as part of your estate planning – beware of Katz v Grossman – provisions in your Will will not bind the SMSF. It’s all about the Binding nomination and control of the SMSF.
For further information or advice on how superannuation and your estate planning works, contact Dennis Danaher at Danaher Legal.
Dennis Danaher is the director of Danaher legal. He has practised law since 1999. Having travelled and lived overseas and worked in different industries he has a full appreciation of the legal and commercial issues that his clients face on a daily basis.