How Do You Ensure Your Superannuation Death Benefits Are Dealt With According to Your Wishes?

It is well observed that for many Australians, their superannuation, especially if it contains life insurance, can represent a significant part of their assets. What may be less well known is that superannuation does not automatically form part of an estate and does not pass according to the Will or intestacy laws. Superannuation death benefits are dealt with under their own complex rules, and disputes are becoming increasingly common.

The complexity of these rules was illustrated recently by the case, well reported in the press, of a Victorian magistrate who had a brief romance with a court clerk 45 years his junior. He was awarded the clerk’s superannuation death benefits after her untimely death in a car crash at just 23 years of age despite him not being the nominated recipient. This proposed dispersion is now being disputed. How did it come to this, and could it have been prevented? 

A cautionary tale

Ms Petrie was only 23 years old when she was tragically killed in a car crash. She and Mr Higgins, 68 years of age, were a couple for just seven months, lived together for four months, and engaged for a month.

Mr Higgins is a high earning magistrate in Bendigo, Victoria. He made a successful claim on the superannuation death benefits of his late fiancé. The fund, Rest Super, agreed with his argument that he was the de facto partner of Ms Petrie and, therefore, her ‘dependant’. This was despite the fact Ms Petrie had nominated her mother as the beneficiary of her superannuation and life assurance balance which amounted to $180000.

The payout has been delayed as Ms Petrie’s mother has contested this decision, having appealed to the Australian Financial Complaints Authority.

What does the law say about who will inherit someone’s superannuation death benefits?

As superannuation is not considered to be covered by a Will, it does not automatically form part of an estate. Instead, a person’s balance is held in trust by the superannuation fund. Without a binding death benefit nomination in place, the trustees of the superannuation fund will decide who is to receive the benefits.

Superannuation fund members can make a binding or non-binding nomination of who they wish to inherit their benefits when they die. However, a fund can override a member’s nomination if it does not comply with the Superannuation Industry (Supervision) Act.

The beneficiary nominated must be in a class of eligible persons, which includes de-facto spouses. However, the Act does not specify how long a couple must cohabit to be considered de facto. Unlike intestacy, there is no minimum period for establishing the existence of a de-facto relationship.

As a result, the fund’s trustees may end up making decisions about whether or not there is a spousal relationship or how much each family member should receive when competing claims have been made.

Where there are no dependants, a person may nominate their estate to distribute funds according to their Will or the intestacy rules if they do not have a valid Will.

Why did the mother not inherit her daughter’s superannuation fund?

As outlined, superannuation law governs who is eligible to receive the death benefits from a superannuation fund. These eligible categories are:

• a spouse or de-facto partner but not former spouses;
• children;
• any person who was in an interdependency relationship with the deceased either financially, living together, or providing domestic support; or
• a legal representative of the estate.

As matters stand, at 23 years of age and no longer living with her mother, it would have been considered that there was no longer an interdependency relationship between mother and daughter.

The daughter’s nomination was presumably of the non-binding version. A non-binding nomination is more akin to indicating wishes that the trustee will consider when making the payment.

In this case, the fund would have decided that the engagement overrode any other category and made Mr Higgins a dependant in the eyes of the trustees.

How could this situation have been prevented?

To avoid the situation where the superannuation fund trustees decide on the disbursement of the fund, the following steps can be made: 

1.  Make a binding death benefit nomination to bind the fund’s trustees; 
2. Ensure that only an eligible beneficiary is nominated and all forms are properly completed. It is important to be clear who you want to leave the money to because they cannot be an eligible beneficiary if they are not in one of the approved categories outlined. If a nominated person is not eligible, the trustees of the Will still choose who receives the benefits.
3. Review the nomination regularly. Circumstances can change over time, and there is the need to ensure the nomination remains effective. For example, part of the housekeeping needed on marriage is to update the binding death benefit.
4. Superannuation is a complex area. Seek expert professional advice.

The uncertainty over Ms Petrie’s intentions could have been avoided if she had directed the trustees to pay her benefits in a binding nomination. She could have directed her wishes for her estate in her Will.

What does it mean? 

This case outlined raises the question of who really controls superannuation balances. It illustrates the importance of appropriate estate planning in respect of how a person’s superannuation will be dealt with after their death. It shows that even young people might need to think about estate planning.

The key way to ensure death benefits are paid as desired is through a binding death benefits nomination. Non-binding death benefit nominations may not be followed, and if there is no nomination at all, the trustees will pay the money according to its discretion to the estate or an eligible beneficiary.

Contact our Wills and Estate Planning Lawyers in Sydney, NSW

It is important to get expert advice from a lawyer specialising in estate planning and superannuation death benefits. At Szabo & Associates Solicitors, we can provide you with the support and advice you need. Please contact us on 02 9281 5088 or complete the online contact form.