Legal Tip 3: Superannuation

Your Will cannot direct what happens to your super

Superannuation is held in trust for its members until a condition of release is met. Death is a condition of release so the trustee can pay the super death benefits of the deceased out.

However under the SIS Act the death benefits can only be paid to certain people who are classed as "SIS Act dependants" or to the estate:

A SIS Act Dependant includes
- A spouse (married or defacto)
- Any child
- Any person with whom the deceased had an interdependency relationship

or to the estate:
- The deceased's legal personal representative (executor or administrator of estate)

Who the benefits are paid to amount the above is determined solely by the trustee of the fund, subject to the trust deed or a valid binding death benefit nomination (BDBN).

Under trust law a trustee cannot be directed by others - a trustee's discretion cannot be vetted. To get around this trust deeds can direct that the trustee must follow a written direction such as a BDBN.

Some funds only allow a 3 year BDBN which then lapses. If you don't or cannot renew then the BDBN expires and won't be effective.

Without a valid BDBN the trustee will decide where your super goes. If you have your super in an industry fund strangers will decide. If you have 2 children and one is a member of your SMSF then this child will decide where your super goes - to themselves only possibly.

People's super balances are increasing and together with life insurance proceeds it wouldn't be unusual for an average person's super balance to be over $1mil on death.

Tip - make sure you understand where your super will go when you die and do something about it if there is a chance it could end up somewhere you don't want it to go.

 

Good stuff Terry - do you mind covering Superannuation and Divorce?

I am unfortunately having quite a few clients asking the question of what happens to their super balance in an SMSF when they separate and eventually divorce.

Cheers Ivan

 

Even though your will cannot deal directly with super your superannuation can end up being paid to the estate and therefore you will should consider it and ideally incorporate a super proceeds trust to segregate it and save tax.

 

I don't know much specifically about super and divorce. Super can be considered property of the relationship and or a financial resource and divided up in a property settlement on the break down of a marriage or a relationship

 

All good reads

Splitting an SMSF in a divorce | BT

Options for managing your SMSF in the event of divorce | Dixon Advisory

Superannuation - Family Court of Australia

 

SMSFs can expose divorcing members in a difficult position.

Q : Who controls your super ?
You may be one of two trustee Directors ? Can you make unanimous decisions ?
Can the fund event roll out one member ?

Q : Could one of the trustee Directors misuse the SMSF and harm the other prior to Family Court actions ? A case a few years ago saw Mrs X penalised when her former husband stripped the SMSF and abscond to Malta taking all super illegally. Mrs X was left with no money and penalties.

SMSF members should seek immediate legal advice specific to their fund. In many cases the parties mutually agree to windup the SMSF of reach other agreements enabling orderly winding up. One of difficulties with limited recourse facilities is they are usually reliant on both members and the issue with guarantees etc and the asset must be sold. Refinance may be impossible.

 

This was an old post (2015) however I am finding that I am dealing with either implementing a court order or financial agreement on a monthly basis. I am generally dealing with the Superannuation component and it can be quite complex, the lawyers lick their lips with the complexity and then the poor accountant is left with a complex calculation to to interpret and implement.

Cheers Ivan

 

Family Law settlements are required to address and include superannuation of both parties and this adds to complexity. and delays. A settlement will not be acceptable to the Family Court without consideration of super. Many DIY spouse agreements fail this requirement and get rejected.

I have seen some people aggressively chase super balances in a settlement (older people) and other who should NOT chase it as it will be preserved. Additional (ie beyond legal) financial and tax advice on these issues may be important as a poor choice can be costly.