Does Superannuation Form Part of My Estate?

It’s a common misconception that superannuation automatically forms part of an estate upon death, however most often this is not the case.

It’s important to be fully aware of how superannuation may be dealt with in the event of your death and the implications that it may have on your Will, so that if the worst happens, you can ensure your intentions for your superannuation will be carried out.

Superannuation & Death Benefit

Superannuation represents more than a quarter (28.6%) of household wealth in Australia. Almost everyone has some form of superannuation in place, whether it’s a Self Managed Superannuation Fund (SMSF) or a retail / industry fund.

Even if the sum in your superannuation fund is low, it is likely that the account will include a life insurance policy, which in some cases may be worth up to hundreds of thousands of dollars. Superannuation death benefits generally consist of contributions to the superannuation fund, as well as any life insurance held in the member’s account.

Superannuation A Non-Estate Asset

If superannuation is not properly dealt with in the Will, it may end up in the hands of unintended recipients, as several well-documented cases have demonstrated.

Case Study: Katz v Grossman

In the case of Katz v Grossman, the deceased’s Will stated that his estate assets were to pass equally to his son and daughter. Part of the deceased’s wealth included about $1 million in a SMSF. Following the death, the SMSF was controlled by the deceased’s daughter, who paid the superannuation death benefit directly to herself, and not to the estate. As such, the son didn’t receive half the superannuation as intended by the deceased.

The Court determined that the daughter was legally able to do this, highlighting the issues that may arise in estate planning where there is superannuation (and particularly a SMSF) involved.

Ioppollo v Conti

Mrs Conti had children from a previous relationship, but shared a SMSF with her 2nd husband and the children’s step-father, Mr Conti. Her Trust deed provided that unless there was a binding death benefit nomination, death benefits should be paid at the Trustee’s discretion. Mrs Conti died without leaving a binding death benefit nomination, however she did express in her Will that her entitlements in the SMSF were to be paid to her children, specifically stating that no SMSF death benefit should be paid to her husband.

When Mrs Conti died, her husband was left as the sole Trustee of the SMSF. He effectively took control of the SMSF and paid the death benefit of almost $650,000 to himself against the wishes of Mrs Conti according to her Will. The Court found this to be a valid exercise of discretion and ruled that the Will was of no consequence in this regard despite the children also being executors.

In the judgement it was written:
‘It was common ground between the parties the Trustees of the fund are entitled but not bound to take into account the desires of a deceased member expressed in a will as to the distribution or application of that member’s superannuation account.’

In most cases, a Will does not cover superannuation. Both of these cases illustrate that this can have serious consequences for those left behind.

For more information on this topic, please don’t hesitate to get in touch with Hentys Estate Lawyers.

You must be logged in to post a comment.