Super is not automatically part of your Will

Did you know that your Super does not automatically revert to your Estate on your death?

Super is not automatically part of your Will

Did you know that Super is not automatically part of your Will? Unless you have a valid binding death nomination that nominated your Estate as the beneficiary in your superfund, your superfund (if it's an APRA superfund) or the surviving trustee's of your SMSF, get to nominate who the proceeds of your superfund go to.

This can be problematic. For example, say the husband dies, leaving behind his wife with three children and he had an APRA superfund with life insurance. Say there is no valid binding death nomination in place, leaving the APRA fund with the power to decide which dependents get what portion of the superfund. APRA decides the wife can only have half of the deceased husbands super monies (now including the life insurance), the other half is to be given equally to the three children - who will each receive an income stream, not releasing the full amount until they turn 18. Meanwhile you had both planned that in the event of a spouses death, the life insurance would payout the mortgage so the surviving spouse could stay home with the kids. In this example, this is no longer an option.

In the event that you do nominate your Estate to receive your Super, make sure your Will specifically deals with your super proceeds.

Types of Death Nominations

Non-binding death nomination (it's used as a guideline, but doesn't have to be followed)
Lapsing binding death nomination (expires after 3 years, must be witnessed similar to a Will)
Non-lapsing binding death nominations (doesn't expire, must be witnessed similar to a Will, must be allowed for in the trust deed, only in SMSF's - APRA superfunds don't allow for these)
Reversionary nominations - are made at the time of starting a pension, you can only nominate a financial dependent

Who is a dependent?

Under Superannuation Law

Your spouse
Any child (any age)
a person in an interdependency relationship ie
- they have a close personal relationship with you
- they live with you
- one or both provides the other with financial support
- one or both provides the other with domestic support and personal care

Under Tax Law

Your spouse
Your former spouse
Any children under the age of 18
In an interdependency relationship (as above)
Anyone who relies on you for financial needs, ie an adult child that is being supported by you in the way of rent, food, living costs, etc (hopefully because they're caring for you and not being a free-loader)

Estate planning advantages

Because your super is not part of your Estate automatically, you can use it to diversify your wealth in different ways.

For example, say you are a working widow with a beautiful 6-generation family home and some super. You may want the family home to go to one child that also wants it to stay in the family, but that means the other child receives nothing. It might be worth considering life insurance equivalent to the home and nominating your super be left to the second child so the family home doesn't need to be sold to split your estate equally between your two children.

You can also use Reversionary Nominations to take advantage of an ECPI (exempt current pension income) for up to 12 months longer.

For example, if you have a reversionary nomination to your spouse, the pension can continue for up to 12 months (although the ATO says 'as soon as practicably possible, so that could be 6 months) to maintain its tax free earnings status while assets are sold & withdrawn from the surviving spouses balance to allow the deceased's balance to transition to the surviving spouses TBC (transfer balance cap). If both members had a balance of over $2 million each on death, then this could mean considerable savings (ie $2M x 10% = $200K tax free instead of 15% supertax= $30,000 saved; or at marginal rates of tax if forced outside of super sooner). Had a valid binding death nomination to the Estate or spouse for a lump sum payment been left instead, this tax benefit would have been lost.

Other estate planning ideas

Your super is a vital tool when planning your Estate. Although the intention is to enjoy every cent we earn before we die, no one has that crystal ball, which means there's always something left when you die - especially if it was unexpected. To minimise the hidden 'death tax' within your super (if it's to be received by non-financial dependents (ie adult children)), make sure you talk to your accountant, financial planner and lawyer about what options are available and most suited to you. Some ideas include:

Re-contribution strategy
Depending on your age, split pensions/super accounts/balances to allow for multiple beneficiaries with insurance components
Insurance within and outside of your superfund
Continually review your situation as your life changes constantly, so do your circumstances - and tax law!
Make sure you have a valid Will
Make sure you have valid death nominations in place for each super balance you hold
Make sure someone has a copy of all these documents
Make sure you have a Power of Attorney/Enduring Power of Attorney/Health Directive (although this is for the living it is equally important)