1. Superannuation is an asset that is NOT automatically dealt with in a will.
  2. It is possible that the trustees will not follow your wishes unless you make a binding death nomination (BDBN).
  3. This may be particularly important if you have a self-managed superfund.
  4. We can assist you if you let us know that you want to establish a binding death benefit nomination. (BDBN)
  5. Typically, the BDBN will need renewing every 3 years.
  6. Superannuation is often a very important asset and requires documentation to ensure your wishes are followed.
  7. Please contact us if you want to seek assistance or ask any question.

More Details Follow:

Superannuation is a separate component of a client’s overall assets that must be considered and dealt with as a separate piece in the succession planning jigsaw.  Superannuation is frequently given little consideration as many clients are under the impression that their superannuation benefits form part of their general estate and will be distributed upon death in accordance with the terms of their will.

It is important for clients to appreciate that this is not the case, especially as superannuation is now often a client’s second largest asset aside from the family home.

In general terms, a person’s entitlement to a superannuation benefit is controlled by the trust deed of the superannuation fund.

Generally, the payment of benefits out of a superannuation fund is at the discretion of the trustee of the fund, subject to any death benefit nomination that a client may have made in respect of their superannuation benefits during their lifetime. A client may be able to define the circumstances under which the trustee will follow a direction as to how and to whom to pay the superannuation monies upon the person’s death by making a death benefit nomination. If the person makes a “binding” nomination, the trustee will be contractually bound to follow it.

The use of a binding death benefit nomination (BDBN) as a succession planning strategy is particularly effective where the superannuation fund is a self-managed superannuation fund.

The importance of control of the superannuation fund and the exercise of discretion was highlighted in the case of Katz v Grossman.  In this 2005 case, the deceased made a non-binding nomination in favour of his children equally.  The daughter, Linda, had been appointed as an additional trustee. She then appointed her husband Peter as co-trustee.  Despite the non-binding nomination in favour of the distribution to the 2 children equally, Linda and Peter paid the full death benefit of about $1 million to Linda. Daniel the brother, received nothing. The NSW Supreme Court upheld the payment. There was no binding nomination in place that was current at the client’s date of death.  This situation could have been avoided with a valid BDBN.

The significance of this case is that care should be taken to ensure that the trusteeship of an SMSF will pass in such a way as to uphold the wishes and intentions of the client.  This involves reviewing the terms of the SMSF trust deed and putting in place an appropriate succession strategy bearing in mind the critical role the trustee may have in achieving the intended outcome of the client.

The case also highlights the importance of having a valid binding nomination in place that  is current at the client’s date of death to override the exercise of the trustee’s discretion and ensure that the death benefits are paid in accordance with the direction of the client.

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