Since superannuation became compulsory in the 90’s, it has become one of the major assets that you will hold in your lifetime. Because it is such an important asset (and often has life insurance attached to it, making it even more significant) it is important to know how it is dealt with if you should pass away.
Many people think that their superannuation will be automatically dealt with in their Will, but this is not necessarily the case.
Superannuation is a trust structure – this means that there is a Trustee. For employer schemes this is often a large institution, for self managed funds, it could be a person or a private company. Members of the fund (who are entitled to the contributions) are called the beneficiaries.
When a member of the fund dies, the trustee of the superfund has a discretion (if this power is given to it by the Trust Deed, which it normally is) to pay out the super entitlements as the Trustee sees fit. The trustee does not have to follow the wishes set down in the deceased member’s Will (NOTE: In NSW, the superannuation does form part of the Estate). The Trustee will normally only deviate from the Will when they think that all of the deceased member’s dependants have not been adequately taken care of in the Will.
Harry is married with 2 young children (aged 3 and 5 years old). At the staff Christmas party Harry meets Sally, and falls in love. He divorces his wife and marries Sally. Harry and Sally start a new family and make Wills leaving everything to each other. Ten years later, at the staff Christmas party, Harry has a heart attack and dies whilst in the stairwell with his secretary, Amanda.
Sally is left with 2 children. The house has a mortgage on it, but there is Harry’s payout of $600,000 which should pay out the house and give Sally some savings to live off while she raises the kids.
The Trustee looks at Harry’s Will, and decides that the 2 children from his first marriage (they are now 13 and 15 years old) are dependents with financial needs (such as schooling). The super payout is split 40% to the first 2 children and 60% to Sally and her 2 children. After paying the mortgage, Sally has little left.