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Estate planning within your superannuation fund – its not as simple as it looks

A recent determination of superannuation death benefits is a perfect example of the need for appropriate planning in relation to how your superannuation death benefits will be dealt with after death.

In a high-profile case, Magistrate Rodney Higgins was successful in his pursuit of his late fiancée’s death benefits, despite the fact that Ms Petrie had nominated her mother as her desired beneficiary. Unfortunately, superannuation laws can be quite complex and Ms Petrie’s mother was not eligible to receive the payment under the legislation. Mr Higgins and Ms Petrie made headlines in 2019 when it was revealed that the magistrate was in a romantic relationship with the court clerk, 45 years his junior.

There are a number of lessons that can be learned from situations like this one to make sure your death benefits are dealt with exactly as you would wish.

Why couldn’t Ms Petrie’s mother inherit her daughter’s superannuation balance?

Nominating a beneficiary inside super isn’t as simple as just picking anyone you like. Superannuation law governs who is eligible to receive a death benefit payment from a superannuation fund.

The list includes:

  • A spouse or de facto
  • Children
  • Any person with whom the person has an interdependency relationship (live together, financial support, domestic support etc.)
  • Legal personal representative (Estate)

Applying these rules to the case of 23-year-old Ms Petrie, it appears that Ms Petrie must have reached a position in her life where she was not interdependent with her mother.

Could this situation have been avoided?

Absolutely. If Ms Petrie had directed the trustee to pay her superannuation benefits to her estate in a binding nomination, then Rest Super would have been bound to follow her direction.

In this instance, Ms Petrie could then have directed her wishes for her estate through her will. While this may not have prevented a legal dispute, Mr Higgins would be required to challenge Ms Petrie’s will to claim any of the funds.

What happens if my nomination is invalid?

If you have nominated someone who is not a superannuation dependant as your death beneficiary with your superfund, the trustee of the fund (the superfund) has to make a choice on their own about where your benefits should go.

In the case of Ms Petrie, Rest super elected to pay her death benefit to her partner, Mr Higgins. Ms Petrie’s mother has appealed the decision and the pair have been disputing the sum for 15 months.

How can I make sure this doesn’t happen to me?

The simple answer to this question is seek advice. Your financial adviser can help you determine the easiest and most secure way to make sure that your death benefits are distributed in the way that you want them to be.

The key method to achieve this within the superannuation environment is through binding and non-binding death benefit nominations.

  • Binding nomination: this nomination will bind the trustee to follow your wishes
  • Non-binding nomination: This is more like an indication of your wishes that the trustee will consider when making the payment.

Key takeaway points:

  • Even 23-year old’s need to take time to consider their estate planning.
  • In our experience young adults in a demographic where they don’t have their own dependants yet are particularly prone to nominating parents and siblings – which may not be successful.
  • Discussing your estate planning with a financial adviser can save your loved ones a lot of heartache.

Important Update – Still here, albeit from afar

You will have seen the news, read the headlines, been inundated with emails – Melbourne has now entered stage four restrictions as we try to claw back some control over the dreaded coronavirus.

As a result of these new restrictions, businesses around Melbourne must shut their doors for at least the next six weeks – and our business is no exception.

However, despite having to close our doors at Level 23, 500 Collins Street – our virtual doors are always open as our team continues to work from home and provide support to our clients remotely. Your financial planner, accountant, mortgage & finance, property management, property investment, and property sales advisers are standing by, ready to help in any way we can.

We could go on and on, but we’ll keep this brief. We’re here for you now as we always have been, committed to providing you support and the high level of service you’re used to, when you need it most.

Whether it’s a chat on the phone or a virtual “face-to-face” meeting via the wonders of Microsoft Teams video calling technology, The Hopkins Group team is always here for you – even when we must be physically apart.

Keep strong,

The Hopkins Group

Overcoming Estate Planning Misconceptions

Benjamin Franklin once wisely wrote that “in this world nothing can be said to be certain, except death and taxes” – and for those working in the estate planning space, we know that if you’re not careful, the first matter can often lead to the second.

Alarmingly, more than half of the adult population of Australia have not executed a will. In my experience, there are two powerful factors discouraging people from seeking a will;

  1. Accepting that you need a will requires you to accept the finite nature of life – which as humans we are loath to do.
  2. Wills are associated with lawyers – and lawyers means fees.

However, the reasons not to do a will can be outweighed by the benefits if you allow yourself to start those tough conversations. To help address the stigma surrounding estate planning, let’s address a couple of common misconceptions and how The Hopkins Group can help.

Misconception 1:  ‘I don’t need to do any estate planning – I will just go get a will’

We hear this a lot and it’s often the main barrier that clients throw up in response to the suggestion of organising an estate plan. The reality is that an estate plan and a will are entirely different – in fact a will is just one small component of an estate plan.

When we sit down with clients to discuss their estate plan, we have a comprehensive discussion that includes;

  • A will
  • Enduring powers of attorney
  • Appointment of guardians for dependents
  • Financial powers of attorney
  • Medical powers of attorney
  • Superannuation death benefit nominations
  • Life insurance death benefit nominations
  • Powers of appointment for any applicable family trust
  • Drafting of testamentary trusts into a will (where appropriate)
  • Tax minimisation strategies
  • Asset protection

An appropriate estate plan must be ordered, secure and flexible to reduce the likelihood for potential litigation and to ensure that our clients and their beneficiaries are placed in the best possible position. The Hopkins Group holds your hand through this process from start to finish.

Misconception 2: ‘I don’t have many assets, so I don’t need to make an estate plan’

This is common amongst younger clients, and it also tends to explain the statistical trend of more people having wills past the age of 60.

In some cases, it may even be true that a will is not advisable; but to be honest, I am yet to see one. Let me provide an example:

Jim and Pam are a young couple. They have recently married and have just had their first child, Michael. They are confident that with their net asset position that they do not need a will. They present their asset position as follow:

Asset Owner Net Value
Primary residence Joint $50,000 (net of mortgage)
Super Jim $65,000
Super Pam $40,000
Total      $155,000                     

However, what they don’t realise is that Jim has life insurance of $350,000 inside his superannuation policy. Pam also has life insurance she is unaware of worth $300,000. If Jim and Pam were to tragically pass away together, they would leave a joint sum of $805,000.

In this scenario, if Jim and Pam had completed a binding death benefit nomination which favoured their Legal Personal Representative this sum would be dealt with in their will. Furthermore, if they had executed a will that established a testamentary trust for Michael and invested 100% of their assets into this trust, only to be accessed at the age of 18. By the time Michael reaches 18, he will benefit from a full 18 years of compounding interest on their initial lump sum.

Even with a modest asset position, it is important to sort out your affairs.

Everyone works hard for their money, so there is no reason to not work just as hard to ensure that your wealth is distributed in accordance with your wishes upon death.

At The Hopkins Group, we’ve developed our estate planning service to break down the stigma and simplify the whole process for our clients – making it more efficient and less confrontational to create peace of mind.

It’s not an easy topic to think about, but establishing an estate plan is the best way to control the flow of your wealth should the unthinkable happen. If you’d like to learn more, please give us a call on 1300 726 082 to speak with one of our advisers today.

What I learned as an Executor of Estate

How does a Testamentary Trust protect your estate assets?

Why we deliver estate planning services

Confronting your estate planning fears

What is an estate plan?

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