Many Australians are surprised to learn that their superannuation doesn’t automatically become part of their will when they die. This critical distinction can have significant implications for how your hard-earned retirement savings are distributed to loved ones. Biddle Law Wills and Estates highlights that without proper planning, your super might not go to who you expect.
Key Takeaways
- Superannuation is held in trust and isn’t automatically part of your estate
- Only eligible dependants can receive super death benefits tax-free
- Different types of nominations determine who receives your super and how much control you have
- Tax implications vary significantly depending on who receives the benefit and how it’s paid
- Regular review of nominations is essential after major life events
How superannuation is treated after death in Australia
Legal status of superannuation funds vs personal estate
Superannuation exists in a legal structure separate from your personal assets. While your will controls your house, bank accounts and personal possessions, your super is held in trust by the super fund trustee. This fundamental distinction means your super doesn’t automatically flow into your estate upon death.
Role of the fund trustee in paying death benefits
When you die, the trustee of your super fund is responsible for distributing your death benefit. They must identify eligible beneficiaries according to superannuation law and the fund’s rules. This can involve substantial discretion unless you’ve left specific binding instructions.
Interaction between binding nominations and trustee discretion
Without a binding nomination, trustees exercise their judgment about who should receive your super. However, with a valid binding nomination, trustees must follow your instructions, provided the nominated beneficiaries are eligible under superannuation law.
“The separation between superannuation and estate assets catches many Australians off-guard. Understanding this distinction is fundamental to effective estate planning.” – Biddle Law
Who can receive your superannuation death benefit
Eligible dependants under super law and tax rules
Superannuation law restricts who can receive your death benefit directly from a fund. Eligible dependants include:
- Your spouse (including de facto and same-sex partners)
- Your children (of any age)
- Financial dependants
- Interdependent persons (those with close personal relationships involving financial and domestic support)
Non-dependants and estate as beneficiary
If you wish to leave super to someone who isn’t an eligible dependant (like a sibling or friend), you must nominate your estate as the beneficiary and then direct the funds through your will. This approach typically results in less favourable tax treatment.
Priority order and competing claims
When multiple potential beneficiaries exist, trustees assess relationships based on evidence like shared living arrangements, financial interdependence, and the nature of relationships at the time of death. This can lead to disputes, particularly in blended families or where relationships have changed.
Types of beneficiary nominations and what they mean
Binding death benefit nomination (BDBN)
A binding nomination legally directs the trustee to pay your death benefit to your nominated beneficiaries. Most retail and industry funds require these nominations to be renewed every three years, while some allow non-lapsing binding nominations. If a binding nomination expires or is invalid, trustee discretion applies.
Non-binding nomination
Non-binding nominations express your wishes but don’t legally compel the trustee. They’re considered guidance, but trustees maintain discretion to determine the final beneficiaries based on circumstances at your death.
Reversionary beneficiary nominations
For pension accounts, a reversionary nomination allows your pension to continue being paid to your nominated beneficiary (typically a spouse) after your death. This option provides continuity of income and may have advantages for Centrelink and tax purposes.
SMSF-specific considerations
Self-managed super funds offer more flexibility but require careful documentation. The trust deed must allow for binding nominations, and specific execution requirements must be followed. SMSFs can sometimes offer perpetual binding nominations not available in retail funds.
Tax and Centrelink implications for beneficiaries
Tax treatment when beneficiaries are dependants vs non-dependants
Death benefits paid to tax dependants (spouses, minor children, financial dependants) are tax-free regardless of how they’re received. Non-dependants (adult children who aren’t financially dependent) face tax on the taxable component, typically at 15% plus Medicare levy.
Treatment of lump sums vs income streams
Benefits can be paid as lump sums or income streams, with different tax consequences. Only certain dependants (spouses, minor children, disabled children) can receive death benefits as income streams.
Impact on Centrelink and family assistance
Super death benefits can affect government payments. Lump sums may be exempt from the assets test if spent quickly, while income streams may count toward income and assets tests, potentially reducing pension entitlements.
Role of your will and the executor
Why a will does not automatically control super
Your will only controls assets you legally own at death. Since super is held in trust, it falls outside your estate unless specifically directed to your estate through a death benefit nomination.
Executor responsibilities vs trustee responsibilities
Executors handle your estate assets but have limited authority regarding super unless it’s paid to the estate. They can provide information to super trustees but cannot override the trustee’s decision-making power regarding super beneficiaries.
Steps executors should take to collect information
Executors should promptly notify super funds of the death, provide the death certificate, and inquire about nomination status. They should also gather details of any insurance within super and follow up on claim progress.
How to make a valid nomination and reduce family disputes
Practical steps to make a binding nomination
To create a valid binding nomination:
- Check your fund’s specific requirements and forms
- Nominate eligible beneficiaries
- Have two independent adults witness your signature
- Submit the completed form to your fund
- Receive confirmation of acceptance
Review and update nominations after life events
Review your nominations after major life changes such as marriage, divorce, births or deaths in the family. An outdated nomination could lead to unintended outcomes or may become invalid.
Communicate your wishes to reduce disputes
Clear communication with family members about your intentions can reduce the likelihood of disputes. Keep copies of nominations with your will and other important documents.
Common problems and how to avoid them
Expired or incorrectly completed nominations
Binding nominations that have expired or weren’t properly witnessed become invalid, reverting control to trustee discretion. Calendar reminders for renewal dates and professional guidance can help avoid these pitfalls.
Conflicting nominations and disputes
Disputes commonly arise when beneficiaries believe the trustee’s distribution is unfair. The Superannuation Complaints Tribunal or courts may become involved. Clear, up-to-date nominations reduce these risks.
Small balances and unclaimed super
For small balances, funds may have simplified claim processes. Executors should check for lost or unclaimed super using ATO services, as many Australians have multiple accounts they’ve forgotten about.
Practical checklist for individuals and executors
Checklist for members to prepare in advance
Take these steps while planning:
- Confirm current beneficiary nominations with all funds
- Consider whether binding nominations align with your wishes
- Review insurance cover within super
- Document where your super is held for your family
- Consider whether directing super to your estate is appropriate
Checklist for executors and family after a death
After a death occurs:
- Gather super fund details and contact information
- Notify all funds promptly with a death certificate
- Ask about claim procedures and timeframes
- Check for insurance benefits within super
- Submit required proof of relationship for dependants
Frequently asked questions
Can I leave my super to anyone in my will?
Not directly. Your super must first be directed to your estate through a death benefit nomination, then your will can distribute it – but tax implications may be less favourable.
What happens if I have both a binding nomination and a will?
The binding nomination controls your super distribution. Your will only affects super if it’s nominated to go to your estate.
How long does it take for a fund to pay a death benefit?
Typically between one and three months for straightforward cases. Disputes or complex situations can extend this timeframe significantly.
Can trustees be challenged if they exercise discretion?
Yes, through internal dispute resolution, the Australian Financial Complaints Authority, or ultimately through court action.
Taking control of your superannuation legacy
Understanding how superannuation is treated after death is an essential part of comprehensive estate planning. By making informed decisions about your beneficiary nominations, you can help protect your loved ones from unnecessary tax burdens and potential family disputes. Regular reviews, particularly after significant life events, will help keep your arrangements current. Biddle Law can provide guidance tailored to your specific circumstances, ensuring your superannuation benefits are distributed according to your wishes when the time comes.
