The value of Binding Death Benefit Nominations for your Superannuation
Posted on September 24, 2014
A recent court case has highlighted the importance of having a binding death benefit nomination that directs where your superannuation benefits are to be distributed upon your death.
James McIntosh died on 14 July 2014 and was survived by his parents. His mother and father divorced in 1979 when James was 7 years old and James lived with his mother for the majority of his life including on the date of his death.
James died without a will. Therefore, as he was survived by his parents, his estate, which was worth approximately $80,000, was distributed equally between them. James’ mother was appointed the administrator of James’ estate. (If you die without a will an “administrator” distributes your estate; if you die with a will an “executor” distributes your estate).
However, James also had approximately $454,000 in superannuation benefits.
Superannuation does not automatically form part of your estate. Upon your death, a superannuation fund can pay your superannuation directly to:
- Your spouse;
- Your children;
- Your estate; or
- A person who you shared an “interdependent” relationship with.
An interdependent relationship is a close personal relationship between two people who live together, where one or both provides for the financial and domestic support, and care of the other. You can direct your superannuation to be paid to either of these eligible recipients by completing a binding death benefit nomination. The effect of this nomination is that, when you die, your superannuation will be distributed in accordance with your wishes which are recorded on the binding death benefit nomination. If you die without such a nomination, then your superfund can decide which of your eligible recipients will receive your superannuation.
James died without making a binding death benefit nomination. James’ mother applied to have James’ superannuation funds paid to her on the basis of having an interdependent relationship with her son due their shared living arrangements. James’ superfund accepted her application and paid the superannuation entitlements to her. However, James’ father argued the superannuation should have been paid into James’ estate and shared equally between him and James’ mother.
Furthermore, he argued, James’ mother, as the administrator of James’ estate, had a duty to maximise the value of James’ estate. Therefore, she should have directed the superfund to pay the superannuation entitlements into James’ estate rather than to her directly.
The Supreme Court of Queensland was required to resolve this issue. The Court agreed with James’ father and said James’ mother had a clear conflict of duty and interest and that she preferred her own interest over that of James’ estate.
The Court said she breached her fiduciary duty as an administrator of the estate and was ordered to pay the superannuation benefits into the estate. The way to ensure that there is no confusion over where your superannuation entitlements are to be paid is by directing your superfund where to pay them. This can be simply achieved by preparing a Binding Death Benefit Nomination. You can then direct your superannuation be paid to your spouse, your children, your estate, or if applicable, a person who you share an independent relationship with. Importantly, you do not leave it to the superfund to decide for you.