When planning your estate, one critical aspect that often gets overlooked is superannuation. Many people assume that their super is automatically included in their estate and will be distributed according to their will. However, this is not the case. Understanding why superannuation isn't automatically part of your estate and how to ensure it goes to the right beneficiaries is crucial for effective estate planning.

Why Superannuation Isn’t Part of Your Estate

Superannuation is governed by a different set of rules compared to your other assets. Unlike your home, savings, or investments, which are directly covered by your will, your super is managed by the trustee of your super fund. This means that, in the event of your death, the trustee has the discretion to decide how your super benefits are distributed, unless you have a valid binding death benefit nomination in place.

The rationale behind this is to ensure that superannuation is used primarily for retirement purposes and to support your dependents if you pass away before retirement. Therefore, superannuation falls outside the direct control of your estate unless you take specific steps to include it.

The Importance of Binding Death Benefit Nominations

To have control over who receives your super, you need to make a Binding Death Benefit Nomination (BDBN). A BDBN is a legal document that directs the trustee of your super fund to pay your super death benefits to the nominated beneficiaries. This can include your dependents, legal personal representative (the executor of your estate), or other eligible individuals.

Without a BDBN, the trustee has the discretion to decide who will receive your super. This could potentially lead to outcomes that are against your wishes. For example, your super might be distributed to your legal dependents, such as a spouse or children, rather than a preferred beneficiary like a friend or charity.

Types of Beneficiaries

When making a BDBN, it's essential to understand who qualifies as an eligible beneficiary. Typically, these include:

• Your spouse (including de facto partners)
• Your children (including adopted or stepchildren)
• Any person financially dependent on you
• Any person with whom you have an interdependency relationship
• Your legal personal representative

It's important to regularly review your BDBN, especially after major life events such as marriage, divorce, the birth of a child, or significant changes in your financial situation. Failing to update your BDBN can result in unintended distributions, which might lead to disputes or legal challenges.

The Role of the Trustee

Even with a BDBN in place, it's important to note that the trustee must ensure the nomination is valid. If a nomination is invalid—due to reasons such as it being outdated, incorrectly filled out, or naming ineligible beneficiaries—the trustee may still exercise discretion. Therefore, ensuring your BDBN is correctly completed and regularly updated is crucial.

Lapsing vs. Non-Lapsing Binding Death Benefit Nominations

When it comes to ensuring that your superannuation benefits are distributed according to your wishes, making a Binding Death Benefit Nomination (BDBN) is essential. However, understanding the difference between lapsing and non-lapsing BDBNs is crucial to maintaining control over your superannuation.

Lapsing BDBN

A lapsing BDBN is the most common type and typically has a validity period of three years from the date it is signed. After this period, the BDBN lapses, meaning it is no longer binding on the trustee. If the BDBN lapses, the trustee regains discretion over how your superannuation benefits are distributed unless you renew or update the nomination before it expires. It may be suitable if you prefer to regularly review your estate planning decisions, ensuring they are always up to date.

Non-Lapsing BDBN

A non-lapsing BDBN does not have an expiry date and remains in effect until you revoke or change it. This type of nomination offers more certainty as it doesn't need to be renewed periodically, reducing the risk of an unintended lapse. They provide more stability and can be ideal if you want to set your nomination once and not worry about it expiring.

Whether you choose a lapsing or non-lapsing BDBN, the most important step is to ensure you have a valid nomination in place that reflects your wishes. Regularly review your BDBN, especially after significant life events, to ensure that your superannuation benefits are distributed according to your intentions.

Conclusion

Estate planning is a process that provides peace of mind knowing your assets will be distributed according to your wishes. Your superannuation is a valuable asset. By taking proactive steps and taking the time to carefully plan your estate, you can protect your loved ones, minimize taxes, and ensure that your legacy (including your superannuation) is preserved.

It’s never too early to think about your estate plan.

Contact us to find out how we can assist and work with you to develop yours.