It wasn’t until Uncle George fell under a bus that really focused the Smith family on their mortality. A few weeks after George’s funeral, Mike Smith, his eldest son realised that George had died without a will, which left a whole range of issues to be dealt with, including his superannuation benefits.
As Mike did not have a will, he started thinking about who he wanted to inherit his worldly possessions should he die and what would happen if he and Jenny, his wife, were to die in a plane accident.
Mike and Jenny have twin daughters, Ruth and Sky, who are 25. Ruth is single and has two children from a previous relationship, while Sky is married to Damon, has one son and lives overseas. Mike and Jenny have had many issues with Damon as they see him as a no-good money-grabbing layabout who seems to exert too much influence over Sky.
One night when they were at home, the discussion about inheritance took place. It included the who, when and how their estates should be distributed among family members. As a start, they both agreed that on the death of either of them, their possessions should go to the survivor. This would include the house and its contents, the holiday house, cars, bank accounts, investments and so on.
Don’t leave it up to the Will
When they got to super, Mike told Jenny there were no problems as it would be taken care of by the Wills. Jenny wasn’t entirely convinced about that and found out from a friend that a person’s Will and how their superannuation was handled are two different things.
Knowing that Wills and super were two different things lead to another after dinner discussion. In the meantime Mike found out that death benefits in super would be paid as provided by the trust deed, which could mean his executor would decide where the money goes. That would be OK if it was Jenny but if they had both passed away the children would make the decision, which could include that ‘no-good money-grabbing layabout’.
However, they understood there was a way of controlling where the super ended up and could be done by making a death benefit nomination.
As Mike and Jenny had a self-managed superannuation fund they found out that they could have a lapsing or non-lapsing death benefit nomination, which may or may not be binding on the trustee.
The nomination could direct who would receive the death benefit, how much they would receive and, in some cases pay it as a pension or lump sum. After thinking about it they decided that they would have a non-lapsing binding death benefit nomination to each other and if one partner should pre-decease the other then the residual was to be paid to their estate.
The end result
But what would happen after the death of the survivor or if they both died? It was clear they didn’t want that ‘no-good money-grabbing layabout’ to get hold of their super and spend it all. After all, it was expected there would be well over $1 million available for their children’s families.
As they weren’t sure what should be done, they sought legal advice from Fee, Large and Biga, solicitors and attorneys. It was suggested that the super could be paid to the estate on the death of the last survivor and a testamentary trust (will trust) could be set up.
The terms of the trust would control how, and to whom, the money would be paid. Mike and Jenny were satisfied that if the twins were the trustees of the testamentary trust the money would be administered as they thought it should. Hopefully, the ‘no-good money-grabbing layabout’ would not get his mitts on the money.
From an inheritance point of view, the changes to superannuation from 1 July 2017 mean that estate planning is essential. This will ensure that the surviving spouse receives the appropriate benefits and then on their death, benefits are paid to remaining family members directly from the fund or indirectly via the estate.
Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regard to your circumstances.