You are here

Superannuation and Estate Planning

-

13 May 2015

A superannuation fund cannot be used to facilitate estate planning. The sole purpose test, with the prescribed Superannuation Industry (Supervision) Act 1993 (Cth) ("SISA") investment restrictions, ensures the retirement income objective is paramount.1

Leaving your superannuation death benefits or control of your super fund to your spouse or children in your will, generally will not be effective in law. One needs to look to the terms of the superannuation fund deed to plan how best to hand over the trustee role in the event of your incapacity and/or death and how to deal with death benefits.

The terms of the superannuation trust deed, when drafted by a solicitor familiar with SISA and Regulations, should provide the answers.

Where the terms of the trust deed do not comprehensively deal with these issues, the following situations may result due to the operation of SISA and Regulations, the Trustee Act 1925 (NSW) and/or the Corporations Act 2001 (Cth).

What happens to your superannuation when you the trustee loses capacity?

Several individual trustees

It should be noted that SISA states that you cannot have a sole individual trustee of a superannuation fund (even if it is a single member fund).2

If a person holds a power of attorney for an incapable trustee, SISA allows that person to act as a trustee of fund in place of the incapable trustee.3 This operates as an exception to the requirement that each trustee of a super fund is a member of the fund.4

If two or more individuals are acting as trustee of a superfund and one of them loses capacity, the other trustee(s) can continue to act as the trustees. The incapable trustee may also be replaced and a new trustee appointed in their place.5

Alternatively, an application can be made to the Supreme Court for an order appointing a new trustee if it is inexpedient, difficult or impractical to do so without the assistance of the Court.6

If the trustee is a company

If a director of a trustee company loses capacity, the trustee company continues to act as trustee.

When the sole director of a single member fund trustee company loses capacity he can nominate a person to take his place as an alternate director via an enduring power of attorney.7 This operates as an exception to the requirement that each director of a corporate trustee of a super fund is a member of the fund.8 Further, under the Corporations Act, his personal representative appointed to administer his property can appoint another person as a director of the trustee company.9

If one of two or more directors of a trustee company loses capacity, the remaining directors can appoint a replacement director.10 The incapable director may have appointed another person to take his place as an alternate director via an enduring power of attorney.11

What happens to your superannuation when you the trustee dies?

Several individual trustees

If one of several individuals trustees of a super fund dies, the other trustees can carry continue to act. The surviving trustees can appoint a new trustee, and, if necessary, the executor of the deceased person can act as a trustee of the superfund until the death benefits payable to the deceased trustee are paid.12

If the trustee is a company

If a director of a trustee company dies, the trustee company continues to act as trustee.

When the sole director of a single member fund trustee company dies his executor can act as a trustee of the super fund until the death benefits are paid.13 This operates as an exception to the requirement that each director of a corporate trustee of a super fund is a member of the fund.14 Under the Corporations Act, the deceased director’s executor may also appoint a person as the director of the company.15

If one of two or more directors of a trustee company dies, the remaining directors can appoint a replacement director.16 If necessary, the executor of the deceased director can act as a trustee of the super fund until the death benefits are paid.17

 

WHO GETS YOUR SUPER WHEN YOU DIE

Who gets your super when you die will depend on:

  1. The type of superfund
  2. Who controls the trustee
  3. The terms of the superfund trust deed and rules
  4. The type of death benefit nomination that you have made, if any.

Death benefit nominations 

Most superfund trust deeds provide for a member to make a binding death benefit nomination (BDBN) or a non-binding death benefit nomination (NBDBN). Most members fail to complete these forms at the time the superannuation fund is established or, having completed a BDBN, do not know or do not remember that such nomination may have lapsed 3 years after execution of the same.

Other members may complete what was a valid BDBN and subsequently executed a deed of amendment to their superannuation fund trust deed which has the effect of invalidating their earlier BDBN.

The type of death benefit nomination to be made will depend on the terms of the trust deed as to what is available, whether the member is in pension mode under the terms of the superfund deed, whether the member has tax dependants to whom super could be left tax effectively, and what is the member’s overall estate planning objectives.

 

SUPERANNUATION AND ESTATE PLANNING

Aside from drafting powers of attorney, enduring guardianship forms, life insurance nominations and wills, dealing appropriately with the superannuation fund is essential in estate planning. It is only when the solicitor dealing with issues of control of the superfund and drafting superannuation death benefit nominations has a sound knowledge of the legal areas that the desired result can be achieved.
 
 
1 Australian Prudential Regulation Authority, ‘The Sole Purpose Test’, Superannuation Circular No.III.A.4 (2001).
2 Superannuation Industry (Supervision) Act 1993 (Cth) s 17A(2)(b).
3 Superannuation Industry (Supervision) Act 1993 (Cth) s 17A(3)(b)(ii).
4 This requirement is from section 17A(1)(b) of the Superannuation Industry (Supervision) Act 1993 (Cth).
5 Trustee Act 1925 (NSW) s 6(2)(e); If the trust deed vested the power to appoint a new trustee in the incapable trustee, section 6(4) of the Trustee Act provides that a new trustee can be appointed by the other trustees.
6 Trustee Act 1925 (NSW) s 70.
7 Superannuation Industry (Supervision) Act 1993 (Cth) s 17A(3)(b)(ii).
8 This requirement is from section 17A(1)(c) of the Superannuation Industry (Supervision) Act 1993 (Cth).
9 Corporations Act 2001 (Cth) s 201F.
10 ‘Filling vacancies or replacing trustees’, Law of Superannuation in Australia [7,040].
11 Superannuation Industry (Supervision) Act 1993 (Cth) s 17A(3)(b)(ii).
12 Superannuation Industry (Supervision) Act 1993 (Cth) s 17A(3)(a); Trustee Act 1925 (NSW) ss 6(2)(a) & 6(4)(b).
13 Superannuation Industry (Supervision) Act 1993 (Cth) s 17A(3)(a).
14 This requirement is from section 17A(1)(c) of the Superannuation Industry (Supervision) Act 1993 (Cth).
15 Corporations Act 2001 (Cth) s 201F.
16 ‘Filling vacancies or replacing trustees’, Law of Superannuation in Australia [7,040].
17 Superannuation Industry (Supervision) Act 1993 (Cth) s 17A(3)(a).