Where Does Your Super Go When You Die?

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Many people believe that it is a given that superannuation does not become a part of your estate unless you make it a part of your Will, but this is not always the case. The importance of taking care of all of the details before you die is an important part of having your affairs in order, regardless of when you think it might happen.

Who Gets What?

As a general rule, the superannuation goes directly to the nominated beneficiaries of the Fund and not to the estate, on your death, but a recent case that went to the Supreme Court, demonstrates that this is not always the case.

What If You Die Intestate (without a Will)?

James tragically died intestate, at the age of 40, survived by his mother and father who had separated when he was 5, and divorced less than 2 years later. Normally when a child dies intestate, the estate is shared equally between his parents. In this case, James’ estate was worth about $80,000 and his super over $450,000.

At the time of his death James had lived with his mother for 30 of his 40 years (a relationship of financial and emotional dependency as James was bipolar) sharing expenses. She applied for Letters of Administration and Probate to manage his estate in the absence of a Will. As the administrator of the estate, she was obligated to  maximise the size of the estate, using the best endeavours that she could”. Her lawyers had advised her that superannuation does not form part of the estate so she sought to have his Super distributed to her in her personal capacity (rather than the estate). Despite the fact that she was not a nominated beneficiary for James’ Super, she did so as a non-binding beneficiary on the basis of their interdependent relationship. Eventually James’ superannuation was paid to his mother via three different funds due to the financial and emotional dependency of their relationship.

Meanwhile, James’ father’s lawyers questioned his mother’s intentions for his Super benefits, stating that her own self-interest was a breach of her fiduciary duties as administrator of the estate. The response that her lawyers gave was that the Super was not an asset of the estate, and the case when to court.

Because James’ mother had been granted Letters of Administration to deal with the estate, (making it her duty to maximise the value of the estate) the court ordered that her own self-interest should not have come before her responsibility as administrator. The court ordered that the superannuation benefits become a part of the estate and were split equally between James’ mother and father.

In this case, if James had a binding death benefit nomination in place for his Super to go to his mother, and a Will naming her as executor, the outcome could have been different.

Take Care of the Details Today

Regardless of when you think you are going to die, it is important to always have your affairs in order. Check who is nominated to receive your superannuation benefits when you die, and ensure that the right person is nominated according to your wishes. Ensure that you have a current Will, and update it whenever circumstances change in your life. Be aware of who you have nominated as the legal representative of your estate, and ensure that this nomination is current.

Often people will put off taking care of the details, but as the case in question has shown, there is ‘no time like the present’ to sort out your affairs. So give us a call if you need help structuring your assets or managing your Super, and get it done today.

If you feel like you need support in making your way through the uncertainties and tough times ahead, or simply have a question or want more information, please contact PJS Accountants on (07) 33903177 or click here to contact us.

Why Appoint a Corporate Trustee for a Self-Managed Superannuation Fund (SMSF)

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When establishing an SMSF, one important factor to consider is who will act as trustee of the Fund.  Some people may believe that the best option would be to appoint themselves as trustee and another individual with them (in the case of a sole member), as a cheaper alternative to using a corporate trustee. However,this is not always the case. While it does sound like the best option, it can prove to be a very costly decision especially when weighed up against the minimal costs of establishing a company and therefore a corporate trustee of the SMSF.

Costs of Establishing a Company

To establish a company, the cost ranges from $500 to $1000, including the ASIC registration fee. A corporate trustee for an SMSF is known as a special purpose company, so the annual review fee charged by ASIC would be approximately $45. These costs may appear to be expensive at face value, but the advantages of following this route (and appointing a corporate trustee) will ensure that the benefits of the fund are paid out according to your wishes. The other alternative can be very messy, and may cause suffering for the family members who are left behind after your death, as they argue about who gets what.

Benefits of Appointing a Corporate Trustee

One of the most important concerns for people when establishing an SMSF is who will take over control of the fund after their death. By appointing a corporate trustee of the fund, you ensure that the payment of benefits from the fund, are allocated according to your wishes. When establishing a sole member fund, you do not need to appoint a co-trustee of the fund, but appointing the wrong person could allow for benefits from the fund to be reallocated against your wishes.

What Can Happen in the Absence of a Corporate Trustee?

A case that demonstrates the importance of appointing a corporate trustee is that of Katz v Grossman [2005] NSWSC 934. In this example, following the death of his wife, Mr Katz appointed his daughter as co-trustee of his SMSF. Following his own death, Mr Katz daughter appointed her husband as co-trustee of the Fund, but her brother challenged the appointment. The court held that the appointment was valid and the superannuation benefits were paid solely to his daughter, rather than according to his wishes for them to be shared equally between his son and daughter.

Had Mr Katz used a company as the trustee of his Fund, making himself the sole director and sole shareholder, his daughter would not have been left in control of the Fund after his death but rather, would have been both his daughter and son, the legal representatives based on his Will.

Another case that demonstrates the importance of having a corporate trustee of an SMSF is that of Wooster v Morris (2013) VSC. Mr Morris remarried, but had two daughters from his previous marriage that he wanted to receive his superannuation benefits from his SMSF. He and his ‘new’ wife were both members and trustees of his Fund. Two years before his death, Mr Morris made a binding nomination that on his death, his superannuation benefits would be paid to his two daughters.

Following his death, his current wife appointed her own son as co trustee of the SMSF and upon obtaining advice that the binding nomination was invalid, they appointed a company controlled by the wife. This company decided to pay Mr Morris’ superannuation benefits to his wife against his Will, and not to his daughters. His daughters embarked on extensive litigation and succeeded in proving that the binding nomination was valid. But all of this could have been avoided had he retained his superannuation benefits in a separate Fund, and appointed a company as trustee of the fund. His will that appointed both his daughters as his Executor would have left them in control of payment from the Fund.

Other benefits for appointing a corporate trustee can be seen in the case of the death of one spouse/partner. In this example the surviving partner would not need to consider who to appoint as a co-trustee as all assets would remain registered in the name of the company, which continues as trustee.

These cases demonstrate the importance of making the right choice of an appropriate trustee for an SMSF, highlighting the benefits of seeking advice when planning for the future of the estate.

If you feel like you need support in making your way through the uncertainties and tough times ahead, or simply have a question or want more information, please contact PJS Accountants on (07) 33903177 or click here to contact us.