As noted above Superannuation does not automatically form part of your deceased estate. At death, your superannuation only goes to:

  1. directly to your dependents; or
  2. into your Will (your estate)

If it goes directly to your dependents then it does not go into your Will. In which case, if someone challenges your Will they cannot attack your super. This is because, in this instance, the super is not in your Will. Well, that is the tried and tested rule until the Benz case.

(For the moment, let us forget that the potential 32% tax on superannuation going to adult children.)

Where does your super go at death?

There are three methods to decide where your super goes at death. One of them is to sign a valid binding nomination. As to the other two methods a valid binding nomination overrides:

Notional Estate

In NSW, property can be designated “notional estate”. This is by courts. This is where the dead person either:

  • Moved their assets around to stop these assets from being part of their estate. For example, transferred:
    • Asset from tenants in common to joint tenants.
    • The asset to a life estate.
    • Assets into a Family Trust.
    • Assets ‘sold’ for less than ‘full valuable consideration’. The Court in Kastrounis v Foundouradakis [2012] NSWSC 264 states: 
      • “the Act requires “full valuable consideration” and not just “valuable consideration”. The word “full” must be given meaning and effect. The valuable consideration given must be, therefore, approximately equivalent to the value of the property that is disposed of by the deceased.”
  • Failed to take steps that would have made property available to their estate. This is 3 years before their death.

Currently, only NSW has this strange rule. But, Legal Consolidated, is planning for other states to adopt ‘notional estates’, as well. In this court case, Dr Benz’s wealth is in superannuation. There is not much in his estate.

For notional estates when a person dies leaving a Will, their assets (their estate) are distributed. This is under their Will. However, if certain conditions are met, the Succession Act 2006 (NSW), gives the court discretion. This is over certain (non-estate) assets that:

  • were not directly owned by the person at death; or
  • the person distributed the assets before death

as ‘notionally’ part of their estate.

Notional estates vs SMSF Binding Nomination

But, the binding nomination is correct. And it is binding!

Sure, the death benefit nomination is ‘binding’ on the trustee of the super fund. But, section 63 Succession Act 2006 (NSW) allows the Court to:

  • treat property
  • that does not form part of a deceased estate
  • as notionally part of the estate. 

This is in certain circumstances.

In Benz, the dead husband is survived by his six children. They are from:

  • his first marriage; and
  • his second spouse, the lovely Erlita

The dead husband signed a binding death benefit nomination to Erlita. This is for the superannuation held in his self-managed superannuation fund. It totals a healthy $13m.

But the dead husband’s residuary estate is only a miserable $200k. So there are only $200k of assets in his Will.

Three of the dead husband’s children start a family provision claim. This is to challenge the distribution of assets only in his Will. Or, so we all thought. The children claim that a bit of the tiny residuary estate in the Will is woefully inadequate. The Court agrees.

In an alarming decision, Justice Ward orders $3.7m be paid to the three children. This is from the dead husband’s superannuation fund.

On a close reading of the case, Legal Consolidated believes that a Reversionary Pension would have stopped the Court from doing this.