When estate planning, many Australians assume that their will controls everything they own, but one key asset often falls outside its scope—superannuation. Superannuation (super) is a major asset for many people, and understanding how it is handled after death is critical to ensuring that your estate planning achieves your wishes. Here’s what you need to know.
Superannuation is not automatically covered by your will
Unlike other assets, superannuation is not automatically covered by your will because it is held in a trust by the super fund. This means that when you die, your super balance does not automatically form part of your estate.
Instead, it is distributed according to the fund’s rules, and the trustee of your superannuation fund has discretion over how the funds are distributed unless you have put specific instructions in place.
Binding and non-binding nominations
Superannuation funds typically allow members to make death benefit nominations to direct how their super will be paid after their death. There are two main types of nominations:
- Binding nominations: This is a legally binding instruction to your super fund about who should receive your superannuation benefits after your death. As long as the nomination is valid and up to date, the super fund trustee must follow your wishes.
- Non-binding nominations: This provides guidance to the super fund trustee about your preferences, but the trustee has discretion to distribute your super to your dependants as they see fit.
Making a binding death benefit nomination ensures that your super is paid to the beneficiaries you intend, rather than leaving it to the discretion of the super fund trustee.
Who can receive your superannuation benefits?
Superannuation law restricts who can receive your superannuation benefits after your death. Eligible beneficiaries include:
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Your spouse (including de facto partners)
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Your children (including adult children)
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Someone financially dependent on you
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Someone in an interdependent relationship with you
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Your legal personal representative (i.e., the executor of your will)
You cannot nominate anyone outside these categories. If you want your super to be distributed to someone who isn’t on this list, it must first be paid to your estate and then distributed according to the terms of your will.
Tax implications of superannuation death benefits
The tax treatment of superannuation benefits after death depends on whether the beneficiary is a dependant under tax law. A dependant for tax purposes includes a spouse, a minor child, or a person financially dependent on you at the time of death.
If a superannuation benefit is paid to a tax dependant, it will generally be tax-free. However, if the benefit is paid to a non-tax dependant (such as an adult child), it may be subject to tax.
Superannuation and blended families
Superannuation can become a complex issue in blended families, particularly where there are children from previous relationships.
If you want to ensure that your superannuation is distributed fairly among your loved ones, it’s essential to consider how your death benefit nomination fits into your overall estate plan. You may want to split your super between your current spouse and children or make sure that your estate plan recognises the needs of different family members.
Regularly review your nominations
It is essential to regularly review and update your superannuation death benefit nominations, particularly when your circumstances change—such as after marriage, divorce, or the birth of a child. A binding nomination generally needs to be renewed every three years, although some super funds offer non-lapsing binding nominations.
Failing to keep your nominations up to date can result in your super being distributed in a way that does not reflect your current wishes or family situation.
Incorporating super into your estate plan
Given the unique rules surrounding superannuation, it’s essential to incorporate it into your broader estate planning strategy. This may involve:
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Making or updating your binding death benefit nomination to ensure your super is distributed to your chosen beneficiaries.
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Creating or updating your will to ensure that any super paid into your estate is distributed according to your wishes.
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Considering the tax implications for your beneficiaries, particularly if some beneficiaries are non-tax dependants.
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Seeking professional advice from an estate planning lawyer or financial advisor to make sure that your estate plan takes superannuation into account.
Final thoughts
Superannuation plays a significant role in many Australians’ wealth accumulation and retirement plans, and it’s important not to overlook how it will be handled after your death.
By making informed decisions about your death benefit nominations and ensuring your superannuation forms part of your overall estate plan, you can protect your loved ones and ensure your wishes are fulfilled.
Proper planning around superannuation requires careful thought, particularly in blended families or situations involving substantial superannuation balances.
If you’re unsure how to structure your estate plan to include your super, seeking professional legal advice can provide you with the peace of mind that your assets will be managed according to your wishes.