Superannuation – Is Your Will Enough?

Superannuation has become a major asset for an increasing number of Australians since the introduction of compulsory payments by employers since 1992 by the Australian Government.

Contrary to popular belief, superannuation is not an estate asset and it does not automatically form part of your estate upon your death. Rather, payment of superannuation upon death is a matter determined by the trustee of the superannuation fund in accordance with the governing rules of the respective fund and relevant law.

Should your fund allow them (there are a few commercial funds that don’t), a binding death benefit nomination (BDBN) is a way in which you can, during your lifetime, override the trustee’s discretion.

A BDBN is effectively a written notice given by a member to the trustee of their fund which directs the trustee to pay the member’s death benefit, often comprising both superannuation and associated death benefits such as life insurance, in accordance with their wishes outlined in the BDBN.

The trustee of the fund is required to follow the instructions outlined in the BDBN, provided that it has been correctly prepared and executed.  A valid BDBN remains in effect for three years from the date it is signed, last amended and confirmed. In some instances, a non-lapsing binding death benefit may also be available and appropriate.

For members that have not made a BDBN with their fund, the trustee of the fund has the authority and discretion to decide whether to pay any benefit payable on your death to one or more of your dependants, or to your estate.

Dependants in this context include a spouse, children of any age, any person financially dependent on the member, any person in an interdependency relationship with the member, and the member’s legal personal representative.

There are a number of advantages to making a BDBN. These include the peace of mind and certainty as to who will receive your death benefit once you die and the ease and speed at which a death benefit can be paid.

Unlike those assets that form part of your estate, a Grant of Probate or Grant of Letters of Administration is not required to be obtained in order for a beneficiary to access your superannuation death benefit. Similarly, a BDBN can protect your superannuation and associated death benefits from any claims made against your estate.

For further advice or guidance on superannuation and the implications for an estate, executor or beneficiary, please contact Alana Stallard on [email protected]  or (08) 9325 9644.

PLEASE CONTACT

Contact Alana Stallard at [email protected] if you wish to discuss this matter or your estate planning objectives further.

Share on facebook
Share on linkedin
Share on email

Some Super Changes

Here we go again….!

Several significant changes to the superannuation rules became effective from 1 July 2017.Do you really need to know about them?  Yes, you do!

Not only will the changes impact on your plans for your superannuation and retirement, but they will very likely also impact on your estate planning objectives and arrangements.

Ok, So What Has Changed?

In summary, the new rules after 30 June 2017 in relation to pensions include the following:

1. A person cannot start a pension with an account balance supporting a pension of over $1.6m (or continue such a pension after 30 June 2017).

2. This limit is called a person’s “transfer balance cap”.

3. When a person starts a pension after 30 June 2017, they will have a “transfer balance account”. This will track key events in relation to the person’s pension, to see if the person exceeds their transfer balance cap (either on starting the pension or at a date on starting an additional pension).

4. If someone exceeds their transfer balance cap, they will need to take action to rectify the problem (that is, by commuting part of their pension).

5. If the person does not take action, the Commissioner of Taxation can force the fund to rectify the problem (by issuing a “commutation authority”).

6. The rectification action that can be taken will involve commuting some or all of the pension to a lump sum.

7. Except in relation to pensions resulting from the death of a member, such a commutation can generally be retained in the superannuation system.

What Does This Mean For Me?

What this means in practical terms is that where the death benefit exceeds the recipient’s transfer balance cap (currently set at $1.6 m), then any excess must be cashed out as a lump sum. This will impact in particular on those wishing to keep benefits in superannuation by reverting or paying a pension to their dependants upon their death.

How Will This Affect My Estate Planning Decisions?

There are a number of ways in which these changes may impact on estate planning decisions. For example:

1. It will be necessary to review and possibly update death benefit nominations and Wills;

2. It may be necessary to review and update Self Managed Superannuation Fund Deeds to bring them up to date with the new legislation and to allow estate planning objectives to be achieved. For example, often older Deeds do not allow for non lapsing Binding Death Benefit Nominations;

3. Where members of a superannuation fund have balances exceeding the transfer balance cap, they may need to consider setting up a  Self Managed Superannuation Fund for their pension interest and retaining their remaining accumulation interest in their existing fund. However, care will need to be taken as this could trigger tax issues and accordingly appropriate tax advice should be sought to determine the tax implications of each strategy. A good estate planning strategy can sometimes be a disaster from a tax planning perspective; and

4. Where a death benefit is required to be paid as a lump sum this may force the sale of non-liquid assets where there are insufficient liquid assets to satisfy the lump sum. In such a situation a strategy needs to be developed to prevent this occurring.

These are examples of some of the impacts the new superannuation rules will have on estate planning strategies, but in individual circumstances there are likely to be other impacts as well.

Conclusion

Estate planning is not a set-and-forget process. Rather it is an ongoing evolving process, which must necessarily respond to changes in individual personal, financial and other circumstances, as well as to changes in the law.

The changes to the superannuation rules will have far reaching effects for those who hold, or who anticipate holding, significant funds in superannuation. Therefore, for those who are, or might soon be, affected by these changes it becomes critically important to respond and carefully review your estate planning arrangements and strategies. This review may necessarily extend to reviewing business structures and business succession arrangements.

Those who choose to ignore the new superannuation rules and/or who choose not to regularly review their estate planning and business succession arrangements do so at their own peril. They also do so at the peril of their families and loved ones with potentially significant detrimental financial consequences.

PLEASE CONTACT

For more information or to discuss any particular concerns contact Les Buchbinder at [email protected].

Share on facebook
Share on linkedin
Share on email