Superannuation is one of the most valuable assets many Australians will have in their lifetime. However, unlike other assets such as property or savings, superannuation does not automatically form part of your estate when you pass away. Instead, it is subject to specific rules under Wills & Estate Planning Law that govern how death benefits are distributed. Understanding these rules is essential to ensure your superannuation is passed on in line with your wishes and to avoid disputes among beneficiaries.
What Are Superannuation Death Benefits?
Superannuation death benefits refer to the money in your superannuation account (including any life insurance attached to it) that is paid out when you die. The benefit can be paid as a lump sum or, in some cases, as an income stream to eligible dependants.
These benefits are distributed either directly by the superannuation fund trustee or according to a valid binding death benefit nomination.
Who Can Receive Superannuation Death Benefits?
Under Australian law, only certain people are eligible to receive superannuation death benefits. They include:
Your spouse or de facto partner
Your children of any age
A person who is financially dependent on you
A person with whom you had an interdependent relationship
Your legal personal representative (usually the executor of your will, if you choose to direct your benefit to your estate)
Unlike other assets, you cannot simply nominate anyone to receive your superannuation death benefits. This restriction makes estate planning even more important.
Binding vs Non-Binding Nominations
When planning for the distribution of your superannuation, you generally have two options:
Binding Death Benefit NominationThis is a legally binding direction given to your superannuation fund, instructing them on how to pay your death benefits. Provided it is valid and current (most binding nominations expire every three years unless made non-lapsing), the trustee must follow it.
If you do not make a nomination, the trustee of your superannuation fund will decide how to distribute your death benefits. This could mean your benefits are paid directly to a dependant or to your estate for distribution under your will.
Tax can significantly affect the final amount beneficiaries receive. Whether tax applies depends on:
The relationship between the deceased and the beneficiary
Whether the benefit is paid as a lump sum or income stream
The components of the superannuation (tax-free or taxable)
Generally, death benefits paid to a dependant (such as a spouse or minor child) are tax-free. However, if paid to a non-dependant, such as an adult child who is not financially dependent, tax may apply.
This is where estate planning advice becomes invaluable.
Common Issues and Disputes
Superannuation disputes are among the most common conflicts in estate matters. Issues can arise due to:
Invalid or lapsed nominations
Multiple dependants with competing claims
Disagreements over who qualifies as a dependant
Tax liabilities reducing the overall benefit
These disputes can result in costly and time-consuming legal proceedings, often leaving families divided.
The Role of Estate Planning in Superannuation
Because superannuation sits outside your estate, it requires careful planning alongside your will. A comprehensive estate plan should consider:
Making a valid binding death benefit nomination
Reviewing nominations regularly, especially after life changes (marriage, divorce, children)
Understanding tax implications for different beneficiaries
Coordinating superannuation with your broader estate planning strategy
By doing so, you can reduce the likelihood of disputes and ensure your superannuation benefits are distributed in line with your wishes.
Superannuation is a significant asset, but its distribution upon death is not as straightforward as many assume. The rules under Wills & Estate Planning Law are complex and require careful consideration. Making a binding death benefit nomination, understanding eligibility rules, and factoring in tax implications are crucial steps to take.
At New South Lawyers, we specialise in Wills & Estate Planning Law and can guide you through the complexities of superannuation death benefits. Protect your loved ones and secure your legacy—
