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Estate planning trap no. 1 – superannuation

Do you really understand your superannuation?  I doubt that many of us do.

Australians had a combined $3.4 trillion in super in March 2022 and it’s growing at about 10% per year.

Superannuation is a big trap when it comes to estate planning, for two reasons.  Firstly, people don’t understand it, don’t always take advice and sometimes fall into the trap of thinking it’s all very simple; and secondly, the regulatory environment of super is over-complicated and, in some cases, confoundingly silly.

Contrary to popular belief, superannuation is not usually dealt with as part of your estate on your death.  So, generally, you can’t give it away in your Will.

Instead, the rules of the super fund will determine how it is dealt with.  In most cases this means the funds pays the death benefits directly to family members – eg your partner or children:

  • either in accordance with a Binding Death Benefit Nomination (BDBN) – as it’s name suggests, a document you make that binds the fund to pay the benefits to certain eligible beneficiaries; or
  • if there’s no BDBN – payment is made at the discretion of the fund manager.

When did you last have tea with your fund manager?  So, why are they in charge of distributing your super?  Hence, it’s really important to make a BDBN.

BDBNs can only be made in favour of eligible beneficiaries – generally, your husband, wife, de facto, children, someone who depends on you or your executor.

BDBN’s expire!  Generally after 3 years – this is the confoundingly silly part.

Rules for SMSFs are even more complex.

Key points:

  • In most cases, a Will is not enough to deal with your super.
  • Understand your super – get advice.  We can help.
  • Make a BDBN – make sure you specify eligible beneficiaries.
  • Most BDBN’s expire – so keep them up to date.
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