Overview

A compensation payout or a TPD benefit paid into superannuation can change a person’s financial position and estate planning needs, sometimes quickly. This is a good reason for an estate planning review while a claim is progressing, where possible, rather than leaving it until after funds arrive.

Why an estate planning review looks at ownership and structure

A payout does not receive different estate treatment simply because it is large or came from a claim. What matters is how the money is held.

Assets held solely in the claimant’s own name, such as funds in a personal bank account or an investment held individually, will generally form part of their estate and be distributed under their will (or under intestacy laws if there is no valid will). Superannuation works differently: it does not automatically pass under a person’s will. Instead, it is paid according to the fund’s trust deed and any death benefit nomination the member has made. Jointly held assets and assets held in a trust can follow different arrangements again, and may sit outside the estate entirely.

Who would receive your super?

A binding death benefit nomination, where valid and current, directs the trustee to pay the death benefit to the person or people nominated, subject to the fund’s rules and to superannuation law. A nonbinding nomination only indicates the member’s wishes; the trustee retains discretion over who receives the benefit and in what proportions.

Superannuation law also restricts who can be nominated. Fund rules cannot make an otherwise ineligible person eligible. Eligible nominees generally include your spouse or de facto partner, children, someone financially dependent on you, or someone in an interdependency relationship with you. You may also nominate your legal personal representative so the benefit is paid to your estate. Check your fund’s nomination requirements.

After a TPD payout increases a super balance, checking whether a nomination exists, whether it is binding or nonbinding, and whether it reflects current wishes is a specific and useful step.

Who would manage your finances and health decisions?

If the claimant’s capacity to manage their own affairs has been affected by the injury or illness behind the claim, this is a specific area an estate planning review needs to address directly, rather than assumed to be sorted through routine paperwork.

In NSW, an enduring power of attorney authorises someone to make financial and legal decisions, while an enduring guardian can be appointed to make health and lifestyle decisions. These are separate appointments covering separate decisions. Terminology and requirements differ in other Australian states and territories.

Providing for a family member with disability

If you intend to leave money to a family member with disability, consider how that inheritance would be managed and support their future needs. A Special Disability Trust may be an option where the beneficiary and trust meet specific eligibility requirements.

An SDT cannot receive compensation payments made to, on behalf of, or held in trust for its principal beneficiary. This means you cannot use an SDT to hold your own compensation payment for your benefit.

Your estate planning review checklist

Where a claim is progressing, speak with your solicitor and financial adviser about which arrangements can be reviewed or put in place now, and what will need another check after payment.

• Whether there is a valid will and whether it reflects the claimant’s current wishes, circumstances and intended beneficiaries
• Whether a superannuation death benefit nomination exists, whether it is binding, and whether it reflects current wishes and eligible recipients
• Whether an enduring power of attorney and, where relevant, an enduring guardian appointment are in place, and whether the claimant currently has capacity to make or update them
• Whether you intend to provide for a family member with disability, and whether an SDT is relevant to that plan

A specialist financial adviser can help identify the most urgent gaps given the payout and the family’s circumstances, and can work alongside a solicitor where legal documents need to be prepared or updated. Coordinating the financial and legal sides of an estate planning review tends to produce a clearer outcome than addressing them separately.