Doesn’t my Will have the final say?

Superannuation isn’t generally considered an estate asset, so if you’re counting on your Will to dictate where yours will go when you die, you might be disappointed. To have a say in how your super death benefit is distributed, you must nominate a beneficiary.

Super funds have strict rules around who counts as a valid beneficiary. Besides your legal personal representative (the executor or administrator of your estate), your super can only be paid out to a dependent as defined by superannuation law:

• Your spouse (including de-facto partner)
• Your children (including step children)
• A financial dependent
• A person with whom you have an interdependency relationship.

If you want your benefit to go to someone who doesn’t fit into one of these categories, you’ll have to nominate your legal personal representative (so your super benefit can be paid into your estate) and make sure your preferred recipients are specified in your Will.

Nominating an invalid beneficiary

If you haven’t made a death benefit nomination, or you’ve nominated a beneficiary your super fund considers invalid (for example a sibling or parent), it will fall to the trustee of your super fund to determine who receives your money.

While the trustee will consider your circumstances at the time of death, at the end of the day they have to distribute the money in accordance with super law, and that may not line up with your wishes.

One case of this happening involved a young law clerk named Ashleigh Petrie. Following her death in a motor vehicle accident, Petrie’s super fund paid the death benefit to her de-facto partner, despite her mother being listed as the beneficiary.

The decision was contested and a legal battle between mother and partner ensued. This dragged on for two years, only ending once the two parties agreed to a confidential settlement.

While it might seem unfair, your super death benefit can only be directly paid to a sibling or parent if they are financially dependent on you or in an interdependency relationship with you. In most cases, siblings and parents are unlikely to tick these boxes.

What’s more, even if your sibling or parent did qualify as a valid beneficiary when you made the nomination, they may no longer be eligible if the situation changes by the time of your death.

Allowing your nomination to become out of date

Along with who you nominate as a beneficiary, you’ll also need to be mindful about the type of nomination you make. A non-binding nomination will be treated as little more than a guide — the trustee of your super fund will consider it but ultimately is not bound to respect it.

A binding nomination provides more certainty, but given that these tend to expire after three years, you’ll need to make sure yours is renewed (or amended if necessary) at appropriate intervals.

There are plenty of ways an outdated nomination might create problems for you, such as if you listed an ex-partner as your beneficiary and forgot to change it once you split up. That’s why it’s a good idea to review your beneficiaries every time you undergo a major life change.

Take steps to avoid costly disputes

Confusion around who can be a valid beneficiary can put your loved ones in painful and problematic situations. According to the Australian Financial Complaints Authority (AFCA), there were 464 complaints about death benefits in 2021-22, and 54% were over how they were distributed.

Informed end-of-life planning can help you avoid these situations. To reduce the likelihood of your loved ones becoming embroiled in a drawn-out and stressful dispute, take time to review your nominated beneficiary to make sure they’re valid.

Written and accurate as at: Aug 08, 2022 Current Stats & Facts

Most of us don’t like to spend too much time thinking about when we might pass away. If your health is in good shape, you may feel like there may be no urgency. However, getting your financial affairs in order with time on your side can make good sense.

We asked Bhavesh Mistry of MistryFallahi Lawyers & Business Advisors when and how to start thinking about the legacy you want to leave behind, and other estate planning considerations.

Q. Bhavesh, when should someone start thinking about getting their financial affairs in order, and why is it so important?

People often come to us after they have had a first- or second-hand experience. For example, someone they know may have passed away without a Will, been involved in a legal battle or family dispute, or they themselves may have been through a divorce. But you really should be thinking about your financial affairs prior to this, for example, once you get into a relationship and hold financial interests with someone else, especially when a child (a dependant) is involved.

Putting valid and appropriate legal arrangements in place (and regularly reviewing them) can help ensure that your intentions and wishes will be carried out precisely and in a way that supports the financial wellbeing, stability, and growth of those you care about. For some, it’s about being able to support a purpose or mission that has been important during their lifetime. Without the proper arrangements, your loved ones may end up experiencing unnecessary uncertainty, suffering, or family disputes. These are not the kind of memories most of us want to leave behind.

Q. When thinking about passing on assets to family, people often think about creating a Will. Is a Will enough, and are there any other legal documents people should be thinking about?

A person’s financial interests can be wide-ranging, and can include a house, shares, investments, a family trust, company interests or ownership/directorship, international assets, super, and life insurance benefits. While a valid Will ensures that assets which are in your name, can be legally transferred to your intended beneficiaries, depending on your circumstances, you may wish to consider additional documents, including:

• Enduring Power of Attorney and Enduring Guardianship documents, to appoint someone you trust to make financial, personal, lifestyle and medical decisions on your behalf when you no longer have the capacity to make these decisions yourself
• appointing a guardian for any dependents, should you and the other parent pass away
• an Advance Care Directive to outline your wishes for your end-of-life care
• binding nominations for your super and pension accounts (including self-managed super fund accounts)
• death benefit nominations for life insurance benefits
• letters of wishes, details and directions regarding personal items, or statutory declarations and statements to protect your estate from family members who are likely to make a claim
• Deed of amendments in relation to family trusts, nominations and directions for successor appointors and/or successor trustees
• non-binding directions in relation to the intended distribution of discretionary trusts or succession planning within a family business
• key person insurance and buy-sell agreements in relation to any company interests you hold
• the creation of legal rights by way of a deed of family arrangements, loan agreements, contractual arrangements between yourself and entities or other parties (i.e. shareholders agreements, partnership agreements or tenancy and lease agreements).

Q. What are the common pitfalls in the estate planning process?

There is often confusion around what does and doesn’t form part of a person’s estate, and also what legal rights they have in relation to each of their assets or financial interests.

Tax is definitely a common pitfall. The tax implications of transferring an asset to someone else can be significant if not properly understood, meaning your intended beneficiaries could end up with a tax bill they didn’t expect. Other common oversights include not considering foreign beneficiary tax or the cost of maintaining and preserving an asset in a testamentary trust.

Navigating these issues takes careful planning, and bringing together a qualified team of professionals (such as taxation, financial and legal practitioners) may be pertinent here.

Q. What are your top tips for someone starting to think about getting their financial affairs in order?

• Take some time to reflect: Asking the often big and confronting questions can really help you find a compelling purpose to start an estate planning journey, such as: “Who will look after my children if I’m not here?” or “Who do I trust to manage my affairs when I pass away?” or “How can I ensure my children can continue living in our family home and are provided for financially after I pass away?”.
• Have open and honest conversations: For newly-married couples, new relationships or blended families, the estate planning journey can spur some difficult conversations. However, as hard as it can be, these conversations can often bring people together, and create a more united personal and financial relationship.For couples who have been together for decades, conversations like these can provide an opportunity to express whether they wish to be buried or cremated, their intentions around medical lifestyle arrangements and their end-of-life care, and who they wish to appoint as an Enduring Guardian.
• Get the facts: With the help of your financial adviser, accountant, or lawyer, make sure you understand which assets form part of your estate, and all the people who may be entitled to make a claim on your estate. Get clear on who you would like to provide for with your estate. This might seem like a straightforward exercise, but things can get complicated with blended families, estranged relationships, or former partners.

At the end of the day, a plan, whether simple or complex, is better than no plan. Even if your estate is simply a bank account that holds cash, you still need to consider how you wish to divide and allocate that cash to your intended beneficiaries. And, as the famous saying goes, there is no time like the present.