Estate Group update: Recent high-profile determination of superannuation death benefits highlights the need for proper planning and advice

A recent high-profile determination of superannuation benefits has highlighted the need for proper planning and advice in relation to how superannuation benefits will be dealt with after death.

Magistrate Rodney Higgins successfully claimed the $180,000.00 superannuation death benefit left by his late fiancée, 23-year-old Ashleigh Petrie. Ms Petrie had nominated her mother to receive the superannuation benefit, however she was ineligible to receive the benefits under superannuation laws that govern eligibility and so the nomination was not binding upon the Trustee.

Binding and non-binding nominations — what’s the difference?

Members are entitled to nominate where their superannuation benefits are paid upon death. The form of nomination can be binding or non-binding.

As the name suggests, a binding nomination will bind the trustee to follow the direction of the member. The trustee must pay out the balance in accordance with the member’s wishes (subject to legislative and fund requirements being met).

A non-binding nomination is akin to a statement of wishes, and tells the trustee how the member would like their benefits distributed. However, the trustee retains discretion to make a determination, and will consider the member’s relationships at the time of death.

If no nomination is made, the trustee has absolute discretion as to which superannuation dependents
will receive the death benefits.

The ability to make a binding or non-binding nomination depends on the regulations of the particular superannuation fund. While some binding nominations lapse after three years, some funds allow non-lapsing binding nominations. It is important to check the requirements and regulations of your particular superannuation fund.

Who’s eligible to receive a superannuation death benefit?

Superannuation law governs who is eligible to receive a superannuation death benefit from a superannuation fund.

Superannuation dependents include:

• a spouse or de facto, but not former spouses;
• a child (at any age); and
• a person in an interdependency relationship with the deceased.

Under superannuation law, an interdependency relationship is a close personal relationship between two people who live together, where one or both provides for the financial, domestic and personal support of the other.

Ms Petrie’s nomination

While Ms Petrie left a nomination directing the trustee of REST Super to pay her benefits to her mother, only certain classes of people are eligible to receive benefit under a binding nomination, including spouses, de facto partners, financial dependents or an estate.

Despite Ms Petrie’s intentions, the nomination by Ms Petrie was not binding upon the trustee of REST Super as a parent is not considered to be a dependent under superannuation legislation. She was therefore ineligible as a beneficiary under the nomination and the trustee had the discretion to decide where the benefits should be paid.

Decision of the trustee

Mr Higgins successfully argued that he was Ms Petrie’s de facto partner and therefore eligible to receive her benefits as her dependent.

The decision was made by REST Super to pay the benefits to Mr Higgins as an eligible beneficiary and Ms Petrie’s dependent de facto partner.

Ms Petrie’s mother has appealed the decision to the Australian Financial Complaints Authority. The parties have now been in dispute for 15 months.

Could this have been avoided?

Had Ms Petrie directed the trustee to pay her superannuation benefits to her estate in the form of a binding nomination, this dispute may have been avoided. If this occurred, benefits would have likely been paid to her estate and distributed in accordance with any Will she left, and if appropriately drafted, paid to her mother.

Although this is not an absolute protection from a dispute, it would avoid the circumstances that these parties now find themselves in. Mr Higgins would have needed to bring a claim against Ms Petrie’s Will.

Your superannuation planning

This case highlights that superannuation and estate planning is relevant at all ages — despite Ms Petrie’s age, she left a substantial benefit.

Your superannuation benefits and attached insurance policies may form a significant part of your estate. It is therefore crucial to consider how these benefits are to be shared after your passing and to execute all relevant paper work properly to ensure that your wishes are upheld.

Particular attention must be given to ensuring any binding death benefit nomination is up to date (i.e. has not lapsed), reflects your wishes, and can be upheld in light of the restrictions around beneficiaries. For this reason, nominations should be considered in conjunction with your Will and other estate planning documents.

More information

If you need advice on superannuation death benefit nominations, or any other estate planning matter, please contact a member of our Estate Group:

Author

This Estate Group update was authored by Hayley Hunter, Senior Associate.

Note: This update is a guide only and is not intended to constitute legal advice.