RSM Australia

Super is so much more

Wealth Management Insights

Yes, we have had our self-managed superannuation fund for a number of years.

Our accountant looks after the tax each year, we sign a few papers, pay a few invoices and generally everything is pretty straight forward.

We get some tax advice once in a while, but we don't understand what really happens to our superannuation when we die. We reviewed our wills about ten years ago probably before we even set up this fund.

Making sure your superannuation benefits pass to the right people when you die can be a very challenging task.

Did you know that wills or non-binding instructions can be ignored by the surviving superannuation trustee? Similarly, your executor may have no involvement with your superannuation when you die. Self-managed superannuation funds are governed by a large number of rules set out in the document known as the trust deed. Invariably the trust deed will refer to what is described as a binding death benefit nomination.

Often this can be a very basic rule that states one or more individuals can be nominated to receive your superannuation benefits when you die. It may not allow for the situation where the intended beneficiary dies before the member. Obviously a binding death benefit nomination should cater for the situation where an intended beneficiary dies before the member.

Some trust deeds may not permit a member to leave specific assets to a beneficiary. Many self-managed superannuation funds in the farming industry hold a mixture of cash, shares and farming land. A large number were established to diversify investments away from the farm and often provide for non-farming children. If Dad and Mum cannot distribute specific assets to specific children, then a potential disaster is waiting to happen.

A more sophisticated nomination could say facilitate the distribution of farming land only to farming children. Conversely it would allow off farm investments to pass to one or more non farming children after the survivor of Dad and Mum dies.

Another strategy that could be extremely beneficial is for the binding death benefit nomination to direct non farming assets into the deceased estate. Using this technique would allow those assets to be distributed according to the terms of the will. Where the off farm assets are less than the farming assets, it is very unlikely that the farming child could successfully dispute the terms of the will.

The will-maker could then provide the beneficiary with the option of receiving their inheritance via a will trust. A will trust has the capacity to provide massive tax savings and would provide asset protection in the event of bankruptcy or similar legal consequences.

There are many other aspects of these nominations that should be considered in conjunction with your advisor.

For example, the trust deed may allow your power of attorney to make or change your nomination and nominate themselves. Another issue that may need to be considered is, what happens if the specific asset that has been allocated to a child, such as farming land, has been sold in the meantime?

Further, many superannuation members are drawing fund pensions. Have the pension documents indicated that the pension automatically passes to the surviving spouse? If so, the next question is, which document takes priority? Is it the binding death benefit nomination or the pension documents?

In summary, a superannuation fund is not just a tax reduction tool or a nest egg for retirement.

Are you getting the high level advice you need from a superannuation specialist?

No doubt your beneficiaries will be hoping that your affairs are in order and their inheritance has been maximised.

This information is not intended to constitute as advice.