Superannuation is a significant part of most Australians’ wealth, but what many people don’t realise is that it doesn’t automatically form part of your estate when you pass away. Superannuation is held in trust by your superannuation fund, and its distribution is governed by specific rules.

As an experienced estate lawyer, I frequently encounter cases where misunderstandings around superannuation can lead to unintended outcomes for beneficiaries.

This article will explain how superannuation is handled after death, how it interacts with your will, and why keeping your nominations up to date is crucial.

How Superannuation Is Handled After Death

Unlike other assets such as property or bank accounts, superannuation does not automatically fall under your will unless specific steps are taken. This is because superannuation is a form of trust, and trustees have a say in who will receive your retirement funds after your death.

When you pass away, your superannuation fund will look to see if you’ve made a valid death benefit nomination. There are two main types of nominations:

1. Binding Death Benefit Nomination: This type of nomination legally binds the trustee of your superannuation fund to pay your benefits to the person(s) you’ve nominated. As long as the nomination is valid and up to date, it ensures your superannuation is distributed according to your wishes.
2. Non-Binding Death Benefit Nomination: A non-binding nomination acts more like a suggestion to the trustee, who ultimately decides how your superannuation is distributed. The trustee will take your nomination into consideration but can override it if they believe there’s a more appropriate beneficiary.

If you haven’t made a valid nomination or your nomination is outdated, the trustee of your superannuation fund will decide how to distribute the superannuation, often prioritising dependents like your spouse or children.

Superannuation and Your Will

One of the most common misconceptions is that your superannuation is automatically controlled by your will. However, this is not the case unless the trustee of your super fund agrees to pay the superannuation to your estate, which can happen if you’ve made a nomination for your estate as the beneficiary.

Even if your will outlines how you’d like your superannuation to be distributed, it’s important to understand that this document alone won’t necessarily govern what happens to those funds. You need to ensure that your death benefit nominations align with the wishes expressed in your will.

For example, if your will leaves your entire estate to your children, but your superannuation nomination designates your spouse as the beneficiary, the spouse will receive the superannuation, regardless of what your will states.

Updating Your Nominations: Why It’s Crucial

Life changes often, and so should your superannuation nominations. Key life events, such as marriage, divorce, the birth of children, or the death of a loved one, can have a significant impact on how you’d want your superannuation to be distributed.

Here are some important tips for keeping your superannuation nominations up to date:

1. Review Your Nominations Regularly: It’s good practice to review your superannuation nominations at least every two to three years. More importantly, review them after major life events such as marriage, divorce, or the birth of a child.
2. Ensure Your Nominations Are Binding and Valid: If you want your wishes to be carried out without interference, a binding nomination is essential. Be aware that binding nominations often expire after three years, so make sure you renew them in time.
3. Align Your Nominations with Your Will: To avoid conflicting outcomes, ensure your superannuation nominations match the wishes outlined in your will. This will reduce confusion and the likelihood of disputes among beneficiaries.
4. Consider Who Can Be a Beneficiary: Under Australian law, you can nominate certain dependents as superannuation beneficiaries, including your spouse, children, or a person with whom you have an interdependency relationship. If you don’t have any eligible dependents, you can nominate your estate, in which case your superannuation will be distributed as per your will.
5. Seek Professional Advice: Superannuation law can be complex, especially when combined with estate planning. It’s always a good idea to consult with a lawyer or financial advisor to ensure your estate and superannuation planning are aligned and legally sound.

Conclusion

Superannuation is a key part of your financial legacy, and ensuring it’s distributed according to your wishes requires thoughtful planning. By understanding how superannuation is handled after death and regularly updating your nominations, you can protect your loved ones from potential disputes or unintended outcomes.

Keep in mind that superannuation isn’t automatically governed by your will, so proactive steps must be taken to ensure your retirement funds are handled in line with your broader estate planning goals.

If you need assistance with superannuation nominations or estate planning, consider seeking legal advice to ensure your affairs are in order.

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