Superannuation Death Benefits and Your Will: Your “Super” may not Form Part of Your Estate

As most people will know, superannuation (“super”) is the arrangement put in place by the Australian Government to assist people to accumulate a fund to provide an income in retirement. On the death of a fund member, a death benefit can be paid to the dependants of the superannuation fund member, often in the form of lump sums.

In September 2017 it was estimated that Australians had $2.53 trillion in superannuation assets. This is a material proportion of total household wealth (approaching 30%) and for many individuals it represents a significant, if not the most significant, part of their personal worth. However, many will not realise that their personal entitlement in a superannuation fund does not automatically form part of their estate and, therefore, may not be covered by the terms of their Will. This became clear from a Federal Court decision in 2015 and there are valuable lessons and implications to be taken from this case in what began as a family dispute.

Key facts

David Mandie died in 2011 survived by his three children. He was estimated as being worth $289 million at the time of his death. He had made a Will that gave his estate to his daughter, Evelyn, along with an explanation as to why his two sons, Ian and Stephen, were not to be beneficiaries. There had been a history of family disputes over the father’s wealth. In 1995, a settlement had been reached over compensation to the two sons for their (apparently modest) contributions to the family business. Part of that agreement was that neither son should have any further rights against their parents or their estates.

When David Mandie died, the superannuation policy listed his wife Minnie as his beneficiary but she had predeceased him and he had not named another beneficiary. Moreover, he had not made a binding death benefits nomination, which is a written instruction to the trustee(s) of the superannuation fund setting out how the funds are to be paid out on the member’s death. The nomination usually remains in effect for three years from the date of signing and, if valid, the trustee must comply with the nomination.  On Mandie’s death, the trustee of the superannuation fund had to allocate the death benefits among his dependants or to his estate or a combination of both. The only dependants detailed were the three children. If the trustee distributed to the estate, the daughter would have received the benefit as she was the estate’s beneficiary.

The trustee adopted the general rule, which is not to allocate to the estate unless there are no beneficiaries and decided to pay each of the three children equally. The daughter challenged this decision in the Superannuation Complaints Tribunal (SCT) arguing that her two brothers had been removed from her father’s Will after the fall-out over the family business. Although the agreement did not specifically mention superannuation benefits, it was clear, she argued, that it implied the father’s wish was to exclude her two brothers from the all entitlements, not just in the Will but also the superannuation benefits. The trustee had noted the point but determined that it was not the trustee’s role to resolve any real or perceived issues in a deceased member’s estate. The trustee determined that the benefits, in the absence of a binding death benefit nomination, should follow the trust deed, which stated that the benefits should be paid to the beneficiaries, meaning David Mandie’s three children. This SCT upheld this decision.

The daughter, as joint executor, then appealed to the Federal Court but the appeal failed.

Key issues

In reviewing the decision of the trustees, the SCT determined that a superannuation fund trustee is not bound to follow the directions of a Will because superannuation is not an asset of the estate. Moreover, they need not look at what has occurred under the deceased’s Will when deciding where to allocate the benefits. In general, superannuation fund trustees do not pay death benefits to the estate of a deceased member unless there are no dependants or there is a valid, binding death benefits nomination in favour of the estate.

In this determination, the SCT affirmed the decision of the trustees of David Mandie’s superannuation fund. The Federal Court of Australia, in turn, agreed with the SCT and denied the executor of the estate.

In dismissing the appeal, the Court found that “it was not unreasonable for the Trustee to follow its general practice in the circumstances of the present case”.

What does it mean?

The Federal Court decision in Stock (as Executor of the Will of Mandie, Deceased) v N.M. Superannuation Proprietary Limited (2015) confirmed that a superannuation fund does not form part of a person’s estate and is, therefore, not subject to the terms of any Will. If there is no valid, binding death benefits nomination in place on death, the trustees of the superannuation fund have the discretion to decide who benefits from the superannuation fund providing their decision is “fair and reasonable”.

Superannuation death benefits are important. The Mandie case would not have arisen had the father made a binding death benefits nomination. The case, therefore, demonstrates the importance of having a binding death benefits nomination and keeping it up to date.

As superannuation death benefits do not form part of an estate, it is important to arrange for these benefits when undertaking estate planning to ensure they are distributed according to your wishes.

It is still important to have a Will because if the trustee does decide to pay the death benefit to the estate, then the Will determines how the assets (including the superannuation in such circumstances) are to be distributed.

Contact our Wills and Estates Lawyers in Surry Hills, Sydney

Szabo & Associates, Solicitors, can offer expert advice on a wide range of legal matters including contesting, making or updating a Will and preparing an Enduring Power of Attorney and Appointments of Enduring Guardians. Please call George Szabo on (02) 9281 5088 or fill in our online contact form.