Superannuation and Estate Planning: What You Need To Know

When it comes to estate planning, many Australians overlook a crucial aspect: their superannuation. It's a common misconception that superannuation automatically forms part of your estate. 

In reality, the situation isn’t that simple. And without proper planning, your hard-earned super might not end up where you want it.

Does superannuation form part of your estate?

Contrary to popular belief, superannuation doesn't automatically form part of your estate. This means that your Will doesn't govern the distribution of your super, unless specific steps are taken. 

So, how can you ensure your superannuation goes to the right person? 

The most effective way to control where your super goes is through a Binding Death Benefit Nomination (BDBN). This is different from a non-binding death benefit nomination.

A BDBN is a legal document that tells your superannuation fund how to distribute your super when you die. You can nominate:

• Eligible dependants such as your spouse, children, or financial dependants
• Your legal personal representative, which directs the benefit to your estate

Unlike non-binding nominations, BDBN's usually expire every three years for standard super funds. This means you need to ensure you keep your BDBN up-to-date.

Estate planning strategies and tax considerations

It's important to have an estate planning strategy that involves your superannuation. But there are several factors to consider when doing this.

Tax implications

The tax implications vary, depending on who receives your superannuation when you die. If your super goes to a 'tax dependent', they'll receive it tax-free. Tax dependants include:

• your spouse or de facto partner
• your children, if they're under 18
• anyone who's financially dependent on you
• anyone who's in an interdependent relationship with you

Superannuation and estate debts

As a general rule, your superannuation can't be used to pay any debts your estate has, unless your super is first paid to your estate. For this reason, it's important for you to decide whether to direct your super to:

• your estate, or
• specific beneficiaries by setting up a BDBN

Impact on Self-Managed Superannuation Funds (SMSFs)

There are advantages of setting up a BDBN in your SMSF:  

• Greater certainty. You can have non-lapsing BDBNs in your SMSF which are not often available with normal super funds. This provides more certainty that your wishes will be followed.
• More flexibility. SMSFs allow for more tailored estate planning strategies, giving you more flexibility.
• Control. You have more control over your SMSF than you do with an industry fund. SMSF often allow you to nominate an alternate beneficiary or beneficiaries in the event your first beneficiary predeceases you. This differs to regular super funds which would require you to complete a new BDBN after the first beneficiary’s death.

Regular review is key

Estate planning, especially when it involves superannuation, isn't a 'set and forget' exercise. 

Life changes such as marriage, divorce, or the birth of children can impact your estate plan. Regular reviews ensure your plan remains current and effective.

Get professional advice

Superannuation and estate planning isn't an easy exercise and can be time-consuming. It's therefore crucial to seek professional legal and financial advice.

Our experienced Wills and Estates lawyers can help you navigate this process and ensure your wishes are carried out. 

Proper planning now can save your loved ones from significant amounts of stress. So, get in touch to take control of your estate planning today.