Superannuation and Estate Planning

Since the introduction of Superannuation Guarantee in 1991, most Australians will have some form of superannuation as part of their asset. For most, by the time they approach their retirement age, superannuation will usually be their biggest asset besides their residential property.

The younger generation, as they have just commenced their careers, would not have had much opportunity to accumulate significant superannuation saving or assets in their own names. Therefore, for most young adults, estate planning is something they will not consider until much later in their life.

However, estate planning is important for all ages, including the younger generation, regardless of whether they own any significant assets. The reason for this is due to an automatic life insurance that is part of most superannuation.

Most superannuation will include life insurance. For young adults, their superannuation death benefit payment from the life insurance will far exceed their superannuation savings balance. And in an untimely death of a young adult, the superannuation death benefit will usually be the largest asset that will be left behind.

Most people assume that their superannuation death benefit will be automatically paid to their next of kin, but is it really?

Often many fail to execute a binding death benefit nomination for their superannuation and this means the trustee of the superannuation fund can exercise their discretion when making a death benefit payment.

Under the Superannuation Industry (Supervision) Act 1993 (SIS Act), superannuation death benefit must be paid to the following:

• current spouse;
• child of the deceased (including child of a current spouse);
• person in an interdependency relationship with the deceased; or
• deceased’s legal personal representative.

Section 10 of the SIS Act states that an interdependency relationship exists where two people show, for the time period immediately before the death of the deceased, that they

• have a close personal relationship;
• live together;
• one or each of them provides the other with financial support; and
• one or each of them provides the other with domestic and personal care.

In Superannuation Complaints Tribunal (SCT) determination D09-10\023, an eighteen-year-old man died (deceased) without a will. He had a girlfriend, who was living at her parent’s home. Three months before this young man’s death he moved into his girlfriend’s parents’ home and paid board of $70 per week.

At the time of the death of the deceased, the deceased had only $1,537 accumulated savings in the superannuation account. However, due to the life insurance the death benefit payment from the deceased’s superannuation amounted to $131,437. The trustee of the deceased’s superannuation fund initially decided to pay the death benefit amount to the deceased’s parents but the girlfriend of the deceased lodged a complaint to SCT stating that she was in an interdependency relationship with the deceased.

It was decided by the Tribunal to overturn the original decision of the trustee of granting the death benefit payment to the deceased’s parents and awarded the full $131,437 to the girlfriend whom he lived with for three months.

To most people, this would seem like an unfair decision, but given the fact that the deceased lived away from his home, SCT said that his parents failed to fall into any of the categories listed by the SIS Act when considering to whom the death benefit was to be paid. Together with the absence of a binding death benefit nomination, SCT found that the girlfriend, despite the fact that they lived under one roof for only three months, was the only person that fit the definition of “interdependency relationship” at the time of death of the deceased.

If the deceased desired for his next of kin, in this case his parents, to be the beneficiary of his death benefit payment then he should have executed a binding death benefit nominating his “Legal Personal Representative” as the recipient of his death benefit and then had a will in place leaving his instructions.