Super and death

What happens to our super savings and super insurance benefits upon our death?

This is a fundamental question that financial planners and superannuation specialists could answer in an instant.

But despite the big dollars potentially involved, there seems to be quite a bit of uncertainty in the community about the fate of these benefits.

In the June issue of the Law Society Journal, published by the Law Society of NSW, three superannuation lawyers write in a featured article: "A death benefit from a superannuation fund must be either paid out as a lump sum or as pension, but cannot be merely left in the superannuation fund.

"However, many legal practitioners are surprised to know that a lump sum from a superannuation fund does not, by law, form part of the deceased's estate."

The authors are Dan Butler, managing director of DBA Butler Lawyers in Melbourne; Olivera Ivcovici, a solicitor with the same firm; and Marita Wall, a Melbourne barrister.

Butler, Ivcovici and Wall add: "Death benefits are not automatically distributed according to the deceased person's will, nor necessarily in accordance with any nomination they have made to the trustee of the fund - subject to narrow exceptions [which include valid binding death benefit nominations made by a member]."
The key points made by these lawyers are worth repeating again and again, particularly considering that total super savings would now exceed $1.2 trillion. (See APRA's super statistics: Revised-December-2007-quarterly-superannuation-performance.pdf)

And disputes over how funds pay superannuation death benefits rank as, by far, one of the most common issues heard by the Superannuation Complaints Tribunal. (See: http://www.sct.gov.au/)

"Clients should indicate their wishes with respect to the distribution of their superannuation by updating their nominations of beneficiary form with the superannuation fund," Butler, Ivcovici and Wall say. "This is essential if the fund offers binding nominations but also important with non-binding nominations."

As stated simply in the Australian Financial Planning Handbook 2007-08, published by Thomson Reuters, the payment of super death benefits is generally a matter of trustee discretion except where the deceased member has made a binding death benefit nomination. "Specifically," state the publishers, "the governing rules of a superannuation fund may permit a fund member to provide the trustee with a binding death benefit notice requiring the trustee to pay a death benefit to the member's [named] dependants or legal personal representative. If a valid binding death benefit is not in place at the time of a member's death, the fund trustee has a discretionary power in relation to distributing the benefits to dependants".

In practice, all retail personal master trusts, most retail corporate master trustees, and perhaps about a quarter of industry funds provide their members with the option of making binding death benefit nominations, according to a feature last year published last year in Superfunds magazine.

Under the Superannuation Industry (Supervision) Act, dependants include a deceased member's spouse and children.