ASFA reports that as at 30 June 2022 superannuation assets in Australia were $3.3 trillion. There is $885 billion in My Super alone.
It is becoming ever more important to give careful consideration to superannuation when considering an Estate plan.
Superannuation is not necessarily part of your Estate
Firstly, it needs to be understood that Superannuation funds are separate trusts.
The proceeds of a deceased member do not necessarily flow through to the person’s estate. The trustee of the superannuation fund has discretion to pay the proceeds directly to a surviving spouse or partner, or surviving dependent children, or a limited class of other close dependents of the member, or the member’s estate.
This discretion can be overridden by the member executing a Binding Death Nomination. It is imperative that this be done in accordance with the particular superannuation fund’s rules.
For financial reasons, and for convenience, super proceeds are often directed to the spouse or dependant children, but each case needs to be carefully considered taking into account individual circumstances.
This type of direct payment can lessen the amount in the Estate governed by a person’s Will.
This has also been seen as a way of reducing the amount in an estate which could become the subject of litigation about “who gets what” out of the estate.
Recent developments
There has been a recent case which can have the effect of bringing superannuation proceeds back into calculations about an Estate. To understand how this came about, it is necessary to understand the New South Wales legal concepts of “notional estate” and “eligible persons”.
In simple terms, “Eligible persons” are spouses, de factos, same sex partners, children, grandchildren in some circumstances, and some other dependants of a deceased person who claim that provision should have been made for them by the deceased in the Will. It is a limited class of persons. However claims are becoming more frequent.
“Notional estate” allows the Court to consider any assets disposed of by a deceased person within the last three years of the person’s life when considering what assets and resources would otherwise been available in the deceased’s estate. This mitigates against Willmakers reducing what is in their Estate as a measure to discourage claims by eligible persons.
The recent Case
In a recent Supreme Court case, the deceased’s adult children sought provision out of their late father’s estate. Their father died at the age of 84. He had six children with his first wife during a 46 year long marriage. He also had a relationship with a second person during the time of his first marriage. He married her after his first wife’s death.
The second wife inherited the bulk of his assets under his Will. Significantly, a considerable portion of his wealth was in his superannuation – over $12m – and there was also a Binding Death Nomination in favour of his second wife.
The rather complicated and messy ins and outs of the family relationships were summarised in the Court decision which are on the Court’s website. Although the deceased’s superannuation would not otherwise been included as an estate asset due to the Binding Death Nomination in favour of the second wife, the Court deemed the superannuation funds to be notional estate.
This meant those funds should be taken into account when determining the “full amplitude” of the deceased’s assets which the Court could take into account in determining the claim.
The significance of this case is that the Court found a way to cause the superannuation to be part of the Court’s considerations.
The act of failure to revoke the Binding Death Nomination was in effect found to be an act of disposal in relation to the superannuation that could come under the three year rule. This gave rise to the superannuation being deemed to be “notional estate”.
This decision appears to extend the reaches of the Court in determining the conduct that may result in an asset being determined to be notional estate – in this case the failure to revoke a superannuation Binding Death Nomination.
This decision needs to be considered in any estate planning. It underlines the importance of considering superannuation as part of this process. This is particularly the case given the amounts held in these times in superannuation.
This is only a brief summary of the case. Its ramifications are still being considered and the concepts of notional estate and eligible persons are more complex than we are able to fully explain in this short article.
Case: Benz v Armstrong [2022] dated 5 May 2022.
