Disputes over superannuation death benefits are on the rise and it’s not surprising. Superannuation often forms a substantial (if not the most substantial) part of a deceased person’s overall wealth, especially if it includes life insurance. What you may not realise is that, unless you take certain steps during your life, your superannuation death benefits will not necessarily be paid to your intended beneficiaries in the event of your death. This can potentially lead to an arduous, costly and drawn-out battle for those left behind.
Superannuation dispute in the media
The romantic relationship between the now retired Victorian Magistrate, Rodney Higgins, and a law clerk 45 years his junior, Ashleigh Petrie, initially made headlines due to the age gap between the couple and Mr Higgins’ high profile occupation. The story took a tragic turn when Ms Petrie later died after being struck by a motor vehicle at the age of 23.
In the wake of Ms Petrie’s death, a dispute ensued over her $180,000 superannuation death benefit held with Rest Superannuation (Rest). Although Ms Petrie had nominated her mother to receive her death benefit, the trustee of Rest instead decided to pay it to Mr Higgins, resulting in a two-year legal tussle between parent and partner for the money. In the past few days, it has been reported that a confidential settlement of the dispute has finally been reached with the parties understood to have agreed to divide Ms Petrie’s death benefit in unknown proportions.
So what led to this dispute and how can you avoid a similar outcome?
Who can be nominated as a death benefit recipient?
Ms Petrie left a nomination in favour of her mother. Although it is not clear from the media reports, it appears that the nomination was invalid if Ms Petrie’s mother was not eligible to receive the death benefit, because she was not Ms Petrie’s superannuation dependant when she died. If that was the case (and due to the type of nomination Ms Petrie made in any event), this enabled Mr Higgins to claim the death benefit in his capacity as Ms Petrie’s spouse.
Under superannuation law (and subject always to the terms of the trust deed governing the superannuation fund in question), your death benefits can only be paid to one or more of your estate (to be dealt with under your Will or under the applicable intestacy rules if you do not have a Will) and/or directly to one or more of your “superannuation dependants”. These include:
- your spouse (whether marital, civil or de facto of any duration);
- your children of any age (including adopted, step and ex-nuptial children and children of your spouse);
- any person with whom you had an interdependency relationship at the date of your death. Generally speaking, an interdependency relationship exists between two people (whether or not they are related) if they have a close personal relationship, they live together and one or both financially supports the other and provides the other with domestic support and personal care; and
- any person who is financially dependant on you at the date of your death.
If your death benefit nomination names a recipient other than your estate or your superannuation dependant(s), it will be invalid and does not have to be followed by the trustee of your superannuation fund, leaving the trustee free to decide to whom to pay your death benefit. Therefore, if you want your death benefit to pass to someone who is not a superannuation dependant, you will firstly need to direct the trustee to pay it to your estate and secondly provide for your intended beneficiary in your Will. While this will not necessarily prevent a challenge to your Will (a story for another day perhaps), it will get you one step closer to achieving your estate planning objectives and help to prevent a situation where your superannuation fund is left with the choice about where to pay your death benefit.
Making the correct type of death benefit nomination
Nominating the correct recipient of your death benefit is one thing. Making the correct type of nomination is another. In Ms Petrie’s case, her nomination was non-binding which meant that, even if it was valid, the trustee of Rest did not have to follow it.
In order to compel the trustee to pay your death benefit in accordance with your wishes, you need to make what is known as a Binding Death Benefit Nomination (BDBN). Nominations which are described as “non-binding” or “preferred” or similar are not binding and essentially only express your wishes, which the trustee can choose to disregard. Only a valid and effective BDBN will compel the payment of your death benefit to your chosen recipient(s).
It is also important to be aware that unless your superannuation fund presently allows you to make a “non-lapsing BDBN” (which means it can continue in force until you die), many superannuation funds (particularly retail and industry funds) only allow their members to make lapsing nominations (whether binding or not) which continue in force for a maximum of three years and then “lapse” (that is, expire). If that happens, the nomination ceases to be binding and merely becomes indicative of your wishes meaning it’s back to square one. It is therefore important to ensure that lapsing BDBNs are periodically renewed or updated. An alternative option is to move your superannuation to a fund that will allow you to make a non-lapsing BDBN or, in some cases, to set up a self-managed superannuation fund.
Tax considerations
A final point to be mindful of is that different, and often significant, tax consequences can apply depending on who ultimately receives your death benefit. It is important to be aware of those consequences as they may be relevant to your decision about who should receive your death benefit.
Key take-away
Failing to leave a valid and effective BDBN can be disastrous for those left behind. Disputes over superannuation are only set to increase. Don’t be one of the statistics. Take the time to learn about your own superannuation death benefit arrangements and to formulate a suitable estate plan for your personal circumstances.
If you would like advice regarding a dispute concerning a superannuation death benefit or with making a BDBN, please contact our experienced Estates and Succession team.