The nomination of beneficiaries (the person/s to receive the benefits arising from an event or transaction) is an action we are called upon to consider in a variety of situations in life.
One of the many important elements of prudent wealth management is to have your ‘succession plans’ well documented and understood. In a personal situation, this entails the adoption of a well-structured Estate Plan. An Estate Plan encompasses a process that ensure that your estate is ultimately distributed
- To the beneficiaries that you nominate;
- In the amount that you nominate; and
- At the time of your choosing.
Most superannuation benefits are able to be allocated and by-pass the estate administration process where tax benefits can be to your beneficiaries’ advantage – but there is a process to be followed.
Most insurance policy benefits can also by-pass the estate administration process, but only if the correct process is followed will you achieve your final goals.
If you want to benefit particularly beneficiaries directly from either of these sources (superannuation or insurance) then you must ensure that those beneficiaries have been formally nominated in a way acceptable to the trustees.
When it comes to ensuring that the right people receive the right amount of money and at the right time, you must ensure that the right documentation has been attended – and monitored and updated on a regular basis.
The consequences of getting it wrong include:
- The wrong beneficiary (not a good thing if there has been a re-marriage for example – whether of yourself or a former spouse) receives money that should go to your dependents;
- Tax that could be avoided becomes payable because the recipient of the benefit isn’t appropriately dependent on you;
- Legal costs for the Executors in sorting out challenges to your estate could result in lesser distributions to those for whom you wanted to provide; and
- Potential for there to be ‘un-even’ distribution benefits because of tax consequences or misallocation of accounts.
In our series of Estate Planning articles we have dealt with this matter and again commend the regular review of all estate planning elements (including Wills and Enduring Power of Attorney appointments): your financial planner can assist in these matters and will often be able to help you understand the process more clearly.