Superannuation death benefits disputes are on the rise, resulting in superannuation death benefit litigation cases becoming increasingly common. Coupled with recent changes under the super reforms from 1 July 2017, this has highlighted the importance on estate planning advice in relation to superannuation death benefits. In years gone by, superannuation death benefits nominations were typically an afterthought as part of the fund establishment, with many death nominations forming part of member application forms. Since the introduction of binding death benefit nominations in 2000 and further interpretation that SMSFs could make non-lapsing binding death nominations in 2009, ensuring your clients are aware of these options and how they operate as part of their estate planning requirements is important.
Many clients are still not aware that their personal will, in most cases, does not have bearing on the payment of their SMSF death benefits. From 1 July 2017, we have been involved in cases where deceased member benefits have had to be cashed out of the superannuation environment, due to transfer balance cap limitations.
Most SMSFs trust deeds will permit payment of death benefits as lump sum, pension or a combination of both. The SMSF trust deed, death nominations, binding death benefit nominations and pension documentation (if applicable), need to be reviewed to check if the trustee is bound to pay the death benefit to a specific beneficiary and in a specific form or is discretion required. Don’t fall into the trap of assuming one size fits all in relation to binding nominations and pensions nominations, as each client will have their own requirements.
From 1 July 2017, some of the key considerations are:
- Knowing the difference between a death benefit pension and reversionary pension and whether the actual pension documentation in place is valid in respect of either option Reversionary pensions will give the beneficiary 12 months breathing space to decide on how best to take the benefit, but the clients may want the trustee to have full discretion on payment of the death benefit. There is no once size fits all solution
- As you can only access the $1.6M transfer balance cap once, will there be any compulsory cashing of death benefits and how will the fund cope with this?
- Does the fund have pension death nominations and binding death benefit nominations in place? If so, are they in conflict with each other? Keep in mind, pension death benefit nominations apply only to the pension interest, whereas binding death benefit nominations could apply to just the accumulation account or all accounts. This needs to be clarified.
- Does the SMSFs current trust deed comply under the current super reforms? As the SMSF deed represents the governing rules, clients need to ensure that the current deed is compliant under the new rules.
- As effective as binding death nominations can be, it can also result in death benefits not being able to be distributed to the estate if the nomination is made to the surviving spouse.
Your SMSF clients do not want to be in the position where on death of a member, asking what happens next? Looking at SMSF death benefits in isolation from the members estate planning requirements is extremely risky. Partners Wealth Group can assist your practice in conducting an initial death benefit review for selected clients to highlight the issues and assess the documentation. We have found this to be a be a valuable first step in addressing superannuation death advice. For further advice on this process, please contact John Lethbridge at the Partners Wealth Group on (03) 8508 7800 or firstname.lastname@example.org