For estate planning and succession law purposes, superannuation is increasingly becoming an individual’s second largest asset behind the family home.
While a deceased person may have a will outlining their wishes as to the distribution of their assets, an interest in a superannuation fund does not form part of the deceased person’s estate. Rather, the payment of a deceased member’s superannuation benefits is largely a matter of discretion for the trustee of the superannuation fund, subject to the fund’s governing rules.
To provide certainty as to the payment of superannuation death benefits, a member can provide the trustee with a binding death benefit notice (where permitted under the fund’s rules), requiring the trustee to pay a death benefit to specific dependants. In order for a death benefit notice to be effective, it must also meet several strict conditions set out in the Superannuation Industry (Supervision) Act 1993 (SIS Act) and SIS Regulations.
However, this is not the end of the story. A binding death benefit nomination may still be indirectly affected by State legislation regarding wills and testamentary depositions. That is, State succession law will not necessarily be overridden by the Commonwealth SIS legislation. For example, eligible family members may be able to make a family provision application (also known as a testator family maintenance claim) to challenge the deceased’s will if it did not sufficiently provide for their dependants.
As a deceased’s interest in a superannuation fund does not form part of the deceased estate, it is generally protected from a family provision claim. Nevertheless, a superannuation interest may still be designated by a Court as part of a “notional estate” for the purposes of making a family provision order in accordance with State legislation such as the Succession Act 2006 (NSW). For instance, a notional estate order may be made where a Court is satisfied that the deceased person left no estate (or an insufficient estate). Importantly, to make a NSW family provision order, the Court must be satisfied that the deceased’s will has failed to make adequate provision for the proper maintenance, education or advancement in life of the eligible person in whose favour the order is to be made.
Consequently, a superannuation death benefit nomination must still be considered as part of a broader estate planning strategy to ensure that it isn’t effectively undermined by a NSW family provision claim.
While the concept of a “notional estate” is currently unique to NSW, other States and Territories may eventually look to introduce similar notional estate provisions, as recommended by the National Committee for Uniform Succession Laws. Interestingly, the Victorian Law Reform Commission (VLRC) has recommended that notional estate provisions should not be adopted in Victoria. In a 232-page report on Succession Laws, tabled in the Victorian Parliament on 15 October 2013, the VLRC considered that there was no clear evidence demonstrating a need for such notional estate provisions in Victoria (or indeed the effectiveness of the NSW provisions). In recommending against the adoption of notional estate provisions, the VLRC also noted various submissions that viewed an individual’s right to deal with their property during their lifetime as paramount to the operation of the family provision rules.