Superannuation is dealt with under complex rules and is usually not dealt with by a person’s Will, or under intestacy laws (i.e. when a person dies without a Will).
Instead, it is governed by a woefully designed scheme. Its deficiencies were illustrated by the reported case of a Victorian Magistrate who had a brief romance with a court clerk 45 years his junior and was awarded the clerk’s superannuation death benefits after her untimely death.
Some of the major problems with the current scheme are that:
- each superannuation fund is different, resulting in confusion and complexity;
- superannuation funds will often (confusingly) offer non-binding death benefit nominations to members. These are advisory only and are commonly ignored if a dispute arises;
- even where a BDBN is made, if the nominated beneficiaries are not Potential Beneficiaries (i.e. not dependants, or the person’s estate) at the time of death, the BDBN is usually invalid;
- BDBN usually expire after 3 years and can lapse upon certain events (e.g. marriage or divorce);
- superannuation death benefits include life insurance purchased through the fund, and for people who die young, superannuation usually dwarfs their other assets;
- unlike under intestacy laws, there is no minimum period for a de facto relationship to exist for the surviving partner to qualify as a Potential Beneficiary, and a couple may have been living together for only a week and yet be considered de facto;
- trustees and their case managers are not judges (or even legally qualified), and unfortunately we often see that results depend on the personality and decency of the case manager;
- trustees will often rigidly prioritise financial dependants, leading to significant unfairness – we have seen several instances where a trustee awarded all the death benefits to a minor child aged 16 or 17 and leaving nothing to their sibling aged 18 or 19;
- trustees make their decisions behind closed doors and are only subject to a limited review process which can sometimes take years to complete; and
- even more complicated rules apply to self-managed superannuation funds.
In our experience, people who pass away with their superannuation wishes in order are the exception rather than the norm. The result is often tears, frustration and unfairness.
Only careful planning (usually with professional advice) and regular reviews can ameliorate a poorly designed superannuation death benefit system.
This area of the law undoubtedly needs substantial reform, but in the meantime, we can help you navigate the traps. For help with estate planning and superannuation disputes, contact us.