It is a simple question with a complicated answer.
Most people are surprised to learn that their super is not automatically an asset that they can gift in their Will, like a car or house.
This is because your superannuation is held by your super fund manager on trust and this trust arrangement means you can’t simply direct who your super should be paid to when you die.
That might seem like an inconvenience – and if you fail to make proper provision for your superannuation in your estate planning it may form part of your estate – but it can also add some flexibility to your estate planning.
Special rules for super
The trustee of your super fund has certain obligations upon your death which includes paying your super entitlements only within a defined group of beneficiaries. These eligible beneficiaries can include your spouse or partner, your children, your financial dependants or your estate.
While your super can end up in the hands of whoever you choose, the process of how they receive that money will differ.
If your intended recipient is an eligible beneficiary, you can make a nomination with your superannuation fund to have your super proceeds paid directly to them. But if you want your super to go to someone else, say a sibling, parent, or charity, then you must ensure your nomination and your Will work together to achieve your intentions.
It is essential to note that if you try to nominate someone who is not an eligible beneficiary or if you use the incorrect terminology, then your nomination will not be enforceable.
Lets consider this scenario.
Jim died with no will, spouse, children or other dependants. His assets at the time of his death were worth approximately $80,000 plus $450,000 of benefits in a number of retail superannuation funds.
Jim was survived by his parents, who under the rules of intestacy, which apply in Queensland when someone dies without a Will, were the beneficiaries of his estate in equal shares. But his parents had an acrimonious relationship after a divorce 30 years ago.
Because there was no Will appointing an executor, Jim’s mother applied for and was appointed administrator of his estate.
Upon her appointment as administrator, Jim’s mother applied to the retail superannuation funds for the superannuation death benefit to be paid directly to her on the basis that she was in an interdependency relationship with Jim.
That is, she argued that she was a member of that special group of people that the superannuation trustee is obliged to pay superannuation proceeds to.
Her argument was based on facts including that Jim lived at home with her, paid board and contributed to household costs. Jim also had some health issues that meant his mother assisted him with some activities. The trustees of the three retail superannuation funds accepted her claim and paid all of the superannuation death benefit to her directly rather than into his estate.
As a result, Jim’s father received half of only $80,000 instead of half of $530,000 if arrangements had been in place to have Jim’s super paid to his estate.
These are the actual facts of 2014 Supreme Court case of McIntosh v McIntosh. Jim’s father went on to successfully challenge the super distribution to Jim’s mother – but on grounds unrelated to the superannuation rules. And no doubt the cost of doing so considerably diminished the value of the estate overall.
You should therefore consider carefully how your superannuation will be dealt with in your estate planning considerations. With the right advice the unique properties of superannuation as an asset can be very useful – but if left to chance it could produce considerable problems.
If you have any questions or would like more information please contact to our Tax Structures and Planning team.