Your super can potentially be your biggest asset, so it is vital to make sure it benefits the right people if you were to pass on prematurely. While the objective is simple, achieving that objective may be more involved than you think.
Your super can amount to hundreds of thousands of dollars and in most cases is only rivalled by the family home as your largest single asset. While it is primarily intended to provide income in your retirement, it takes on a very different role if you were to die prematurely. Your beneficiaries, such as your spouse and children, may rely on accrued benefits and any insurance payments in your super to fund their ongoing livelihood and financial security.
This means that arrangements you make for your super to be passed on efficiently and accurately are essential, but such arrangements can come unstuck if they are not planned carefully.
Is a ‘nomination of beneficiary’ on your super enough?
You may be aware that you are able to make a directive to your super fund known as a ‘nomination of beneficiary’, which allows you to specify who should receive your super balance if you pass on. This allows the super balance to be allocated directly to the nominated beneficiaries without having to be processed through your estate.
While on the surface this may seem like a reasonable and efficient way to deal with this issue, nominating a beneficiary may not turn out the way you want, if your beneficiary’s circumstances change in the future.
For example, once the money has been paid to a child, your super fund has no further control over it and it simply forms part of that child’s assets. If that child is married at the time of receiving the super monies and then down the track has a divorce, the super you have left to them may be split along with other assets as part of the divorce settlement. Would you be happy for an estranged son or daughter in law to benefit from your super?
Concerns over mismanagement
Another potential outcome of passing on your super via a nomination of beneficiary is the risk of the funds being mismanaged or spent frivolously or contrary to what you intended. For example, one of your children may come under the influence of friends or a spouse who has undesirable motives. The money may be wasted on unnecessary spending or poorly invested, resulting in your intended beneficiary not being looked after as you would have hoped.
A trust arrangement may be the answer
Rather than relying on a nomination of beneficiary approach to bequeathing your super, a more practical solution may be to set up a trust into which your super is paid upon death. You can set rules and conditions within the trust that govern how funds are distributed and what they can be used for.
A trust can effectively limit any risks of funds being misused and protect them from acrimonious divorce settlements. It can even shield the inheritance you pass on from any bankruptcy proceedings if one of your beneficiaries has a business failure after your death.
A trust simply allows you to maximise control over your estate when you are not there to do it yourself.
Professional advice is essential
Setting up a trust can, of course, be quite a complex process and requires skilled attention to ensure it is personalised to your requirements and legally robust enough to fulfil its intentions. This makes it essential to engage professional legal assistance. Apart from the initial set up, there will also be ongoing taxation matters to deal with to keep the trust compliant. While all of this may incur cost, it can be a small price to pay for the peace of mind that it can provide.
If you would like to investigate further, we are happy to discuss how this may work for your situation and to refer you to the proper legal assistance to get things organised, so feel free to contact us anytime.