Greyson Legal Publications

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1 Greyson Legal Publications Superannuation, Life Insurance and Estate Planning Address: PO Box 61, Sandgate Qld 4017 Tel: Fax: Web: Liability limited by a scheme approved under Professional Standards legislation Copyright Greyson Legal 2016, All rights reserved.

2 Superannuation 1. As a general rule, according to the Superannuation Industry (Supervision) Act 1993 (SIS Act), death benefits under a superannuation policy must be paid to the member s dependants or to the member s legal personal representative (LPR) (ie. the executor or administrator of your estate). 2. The SIS Act defines a dependant as: the spouse; child; or any person with whom the member had an interdependency relationship. 3. The trustee of your super fund has a general discretion as to whom it can pay death benefits ie., to the various beneficiaries as defined under the SIS Act or to the LPR of the deceased s estate. In using its discretion when deciding on payment at the death of the member, the trustee will typically enquire about the deceased s family situation, inter-dependants, the provisions in the Will, etc before making a decision. 4. If you wish to limit the discretion that the trustee may have (because you want more control over how your death benefits will be dispersed) you may wish to consider a binding death benefit nomination. Binding Death Benefit Nomination (BDBN) 5. A BDBN is a direction you give to your superannuation fund s trustee to pay your member death benefits to a nominated dependant or dependants or to your LPR. 6. Provided the nomination form is valid, the BDBN binds the trustee of your super fund to pay your death benefit to your nominated beneficiaries. 7. If, for example, you nominate your LPR under your BDBN, the trustee must pay your benefit to your estate in the event of your death. In that sense, your benefit will form part of your estate and be distributed in accordance with your Will. 8. If, on the other hand you chose one or more specific beneficiaries under your BDBN, then the trustee must pay your benefit to those stated beneficiaries. In that sense, your benefit will NOT form part of your estate and will NOT be distributed in accordance with your Will. 9. It is important to remember: if the BDBN nominates your LPR then it will be paramount that you maintain an up to date Will; if your BDBN nominates specifically identified individuals, then the trustee must pay your death benefit to those named beneficiaries (irrespective of any wishes you may have set out in a Will). 10. There may be tax consequences of directing the trustee to pay a death benefit to a particular beneficiary. We recommend you obtain appropriate advice from us (as your solicitor) or your accountant and/or financial planner and/or your super fund trustee before making such nominations. 2

3 11. There are also strict requirements regarding the execution of such nominations, and failure to comply with those requirements can result in the BDBN being invalid. In the event of your death, if the nomination is found to be invalid, the trustee will use its discretion to determine how your benefit will be paid. 12. Each super fund will have their own BDBN form. Typically, in order for the BDBN to be valid you will need to: complete the relevant sections on the form; ensure your named beneficiaries are dependants or your LPR; ensure the benefit allocation between your beneficiaries set out in the form adds up to 100%; and ensure you sign and date the form in front of two witnesses, who must be over 18 years of age and not nominated as beneficiaries. 13. You should contact your super fund for further information and to obtain the appropriate form. 14. It is important to note that if you elect to use a BDBN: these nominations will typically lapse three (3) years after the date it was made; you should diarise the lapsing date and, at least a month prior to the nomination lapsing, you should arrange for the superannuation fund to have the necessary form sent to you to have the nomination renewed; a change in circumstances may affect the validity of the BDBN, eg. one of your beneficiaries dies before you do. 15. It is also worth noting that you can revoke your BDBN at any time by giving a written notice to the trustee, signed and dated by you in the presence of two witnesses both of whom are over the age of 18 years. Death of member of a two-member SMSF with (Individual Trustees) 16. A large proportion of SMSFs in Australia have two members (eg. husband and wife). 17. What happens on the death of a member in a two-member SMSF? 18. Under the SIS Act all members must also be trustees of the SMSF. So in a two-member SMSF there are two trustees. 19. In general: LPR of a deceased member (eg. the executor under the deceased s Will) may act as trustee of a SMSF in the event of the member s death; the SMSF Trust Deed should include provisions dealing with the appointment of the LPR. If you have an SMSF with individual trustees, we recommend you check the LPR appointment process and consider obtaining appropriate professional advice; typically SMSF Trust Deeds allow for the automatic appointment of an LPR, but this should still be checked; the LPR must accept and consent to the appointment; the LPR typically needs to sign a Trustee Declaration ; 3

4 once appointed, the LPR looks after the deceased member s interests in the SMSF until the deceased s death benefits are paid to the deceased s beneficiaries; the LPR must be removed as trustee of a SMSF at the point when the death benefit commences to be paid (either by initial lump sum payment or pension income stream commencement); the surviving member has an obligation to ensure the fund still meets the definition of an SMSF under the SIS Act; where there is two individual members and one dies, the fund becomes a single member SMSF; under the SIS Act (for a single member SMSF), the fund still needs two individual trustees. So if a member dies in a two-member SMSF either: A. an additional new trustee must be appointed if the SMSF is to continue; or B. the surviving member may need to consider re-structuring the SMSF to adopt a corporate trustee (the surviving member would then be the sole director of the corporate trustee); or C. the surviving member transferring their super ( roll over ) into a retail superannuation fund and wind up the SMSF. 20. If options A or B are followed, it will require the ownership details of each asset to be changed to note the new trustee structure. 21. The SMSF must payout the deceased member s death benefit as soon as practicable after the member has died. Typically, this is within a period of 6 months of death. 22. If the fund has limited cash available, it may be necessary to sell assets in the fund in order to pay the deceased member s death benefits. Depending on the circumstances this process could trigger capital gains tax. 23. The SMSF member may have made a BDBN (as discussed above) whereby the deceased member directs the trustee of the SMSF to disperse their death benefits to the LPR or a dependant. Under the SIS Act (as discussed above) the BDBN lapses after 3 years. It maybe possible under the terms of the SMSF Trust Deed to have a non lapsing BDBN. You should consider obtaining appropriate professional advice regarding the SMSF Trust Deed and BDBN. 24. Where there is no valid BDBN, the trustees of the SMSF will have a discretion as to whom they will disperse the death benefits, subject to the terms of the SMSF Trust Deed and the SIS Act. 25. Generally, death benefits paid to a dependant upon the death of the member (either by way of lump sum payment or income stream) will be tax free. Death of member of a SMSF (Corporate Trustee) 26. If the SMSF has a corporate structure, ie., a corporate trustee (or company acting as trustee for the fund) each member is also a director of the corporate trustee. 27. If the corporate trustee has two directors (eg. husband and wife), and the husband dies, the corporate trustee can continue but with the wife remaining as the sole director. If that option was chosen: ASIC would need to be notified of the change in directors (and it may be necessary for a surviving member to also be appointed as secretary of the company); 4

5 there would be no need to register changes in asset ownership or appoint additional trustees (as with a two-member individual SMSF); and it would not matter if the deceased member s LPR was unwilling or unable to act as trustee, as the surviving member of a corporate trustee can continue to act as sole director. Life Insurance through Super 28. Keep in mind that often a member s superannuation fund will also include a default level of life insurance. 29. Unless you have a BDBN then the trustee of the super fund will have a discretion as to the disbursement of the death benefits, which would include the proceeds of the insurance upon your death. Insurance Outside of Super 30. If you have life insurance outside of super then the insurer will pay the proceeds of the policy directly to the beneficiary nominated in your life insurance policy. 31. In general, the proceeds of a life policy do not form part of the deceased estate. 32. If you want any life insurance proceeds to go to your estate then you will need to nominate your estate as the beneficiary under your life policies. The proceeds of the policies will then pass to your estate and be managed by the terms of your Will. 33. If you have such life insurance and require further information we recommend you contact your insurer and/or professional adviser to obtain appropriate assistance and advice. Disclaimer The material provided in this document is for general information only and is not to be relied upon as advice. No responsibil ity is accepted for any loss, damage or injury, financial or otherwise, suffered by any person or organisation acting or relying on this information or anything omitted from it. For legal advice specific to your circumstances contact Greyson Legal on or info@greysonlegal.com.au 5