How to Maintain Control of Your Superannuation

As more Australians prioritise saving for retirement, superannuation has become an increasingly significant part of family wealth. But how can you ensure that you maintain control over this critical asset? Here are six key considerations to help you take charge of your super and make informed decisions for the future.

1. Who Controls Your Super Fund in Case of Incapacity or Death?

For those with a Self-Managed Super Fund (SMSF), the day-to-day operations of the fund are typically managed by the members themselves. If you're an individual trustee, you'll personally oversee the fund. If a company trustee is involved, your role as a director gives you authority over the fund's management.

However, if you become incapacitated or pass away, you will lose control over the fund. The remaining trustees will continue the management, and they, along with any Binding Nominations or Reversionary Pensions in place, will decide how your benefits are distributed.

To ensure your wishes are respected, your Fund Deed should include provisions for the appointment of a replacement trustee in case of death. If you become incapacitated, your legal personal representative may be allowed to act as a trustee under an Enduring Power of Attorney, provided your Fund Deed permits it. Also, if you hold a company trustee, be mindful of how your shares in the company are handled in your Will.

Even if you express preferences in your Will regarding your superannuation, the trustees are not obligated to follow them unless they are legally binding. Here’s what you can do:

• Ensure control of your fund passes to someone you trust.

• Consider making a Binding Nomination to direct how your benefits will be paid.

  
  

If you're not managing an SMSF and instead have a public offer fund, the fund's trustee will continue to manage your super after your death. If there’s ambiguity or invalidity with your Binding Nomination, the trustee will make decisions regarding your death benefits.

2. Minimizing Tax on Death Benefits

The taxation of Death Benefits is crucial to consider when planning the distribution of your super. Benefits paid to a ‘Tax Dependent’ are generally tax-free. However, if the beneficiary is not considered a Tax Dependent, taxes may apply, ranging from 0% to 30%, plus the Medicare Levy.

To avoid excessive tax, consider these strategies:

• Ensure that Death Benefits are paid to Tax Dependents wherever possible.

• If there are no Tax Dependents, consider withdrawing super before death and re-contributing it as Non-Concessional Contributions, which are tax-free.

• Document any relationships of dependency that may not fall under the typical categories of spouse or children.
  

In some cases, paying tax on a Death Benefit (e.g., 15% plus Medicare Levy) might be preferable to giving the benefit to a Tax Dependent who could lose the funds due to legal claims, reckless spending, or other personal issues.

3. Paying a Death Benefit from Your Super Fund

Death Benefits can usually be paid as a lump sum or a pension. A pension can be advantageous as it may offer tax benefits and safeguard the funds from claims against the beneficiary. If you have a reversionary pension in place, it will automatically pass to the designated beneficiary upon your death.

For children, a pension must be commuted into a lump sum once they turn 25, unless they have a specific disability. Be sure your Fund Deed allows the type of pension you wish to establish.

4. Protecting Death Benefits from At-Risk Beneficiaries

If you have a beneficiary who may be at risk of losing the benefit due to factors like:

• Legal claims or creditors,

• A potential relationship breakdown,

• Risky professional liabilities, or

• Personal issues like drug or gambling addiction,
  

Consider protecting the Death Benefit by having it paid into a Testamentary Trust via your Will. This strategy ensures that control over the benefit isn’t entirely vested in the at-risk beneficiary, reducing the chances of mismanagement or loss.

5. Understanding Death Benefit Nominations

Without a Death Benefit Nomination, the trustee of your super fund has discretion over who receives your benefits, though this decision can be contested. You have the option of making a Non-Binding or Binding Nomination to direct the trustee where to allocate your benefits.

• A Non-Binding Nomination guides the trustee’s decision but leaves them with the final say.

• A Binding Nomination legally requires the trustee to follow your instructions. However, Binding Nominations must be renewed every three years and become invalid if the beneficiary is no longer a Super Dependent or has passed away.
  

Some SMSFs allow for Non-Lapsing Binding Nominations, which don’t require renewal but must be specified in the Fund Deed.

If you want more precision in how your benefits are distributed (such as allocating a specific asset to a certain beneficiary), consider including Death Benefit Rules in your SMSF.

6. Essential Documents for Managing Your Super

To ensure your super is handled according to your wishes, several documents need to be in place:

• Fund Deed: Ensure it’s up to date and includes any relevant Nominations or Rules.

• Enduring Power of Attorney: Appoint someone you trust to manage your super if you become incapacitated.

• Will: Specify how your super should be dealt with, including whether it should be distributed through your estate or directly to a beneficiary. If you own shares in a company that acts as a trustee for your SMSF, ensure those shares are passed to someone responsible.
  

Also, appoint an Enduring Guardian or Substitute Decision-Maker to make health and lifestyle decisions on your behalf, and ensure your family trusts are properly documented to avoid confusion and disputes.

For seamless management of your superannuation, ensuring your estate planning documents work cohesively will help minimise potential conflicts after your death.

If you’d like more personalised advice or help with managing your superannuation, minimising tax, or structuring your estate planning effectively, reach out to Symmetry Accounting & Tax, your trusted business advisory and tax experts in Perth. Contact us today to ensure your super is working for you and your loved ones in the future.