What happens to my superannuation when I die?

Whether you are a business owner, manager or employee, most of us accumulate superannuation during our working lives. And, whether your nest egg is small or large, chances are that you would like it to be passed on to your family or other beneficiaries. Unfortunately, the arrangements for superannuation are not always that simple, as Wills & Estates Lawyer Sarah Slattery explains.

Introduction

When you die, your superannuation death benefits (and insurance benefits) do not automatically form part of your estate, unlike most of your other assets, and are not automatically covered by your Will. This is because superannuation is not owned by you personally, but it is instead held by the trustee of the superannuation fund 'on trust' for you. This is the case whether you have a retail superannuation fund, industry superannuation fund or Self-Managed Superannuation Fund (SMSF).

After your death, the trustee of your superannuation fund will pay your death benefits in accordance with any valid nomination that you make, or otherwise in accordance with the rules of the superannuation fund and the superannuation laws.

It is therefore critical to make sure that you make a valid nomination in accordance with the rules of your superannuation fund.

Who can I nominate to receive my death benefits?

There are only certain categories of people who are eligible to receive your death benefits:

  • A surviving spouse
  • A dependent person
  • An interdependent person
  • Your estate – You can direct your death benefits to your estate by nominating your 'Legal Personal Representative'. This directs your death benefits into your estate and the terms of your Will then determine how your death benefits are to be paid to beneficiaries. For example, you could direct in your Will that your death benefits are to be shared between your siblings or parents.
  • A combination of the above – For example, you could make a nomination that directs 50% to your spouse and 50% to your child.

If you make a nomination to pay your death benefits to someone who falls outside these categories (e.g. a parent or sibling) then the nomination will be invalid.

It is always important to review the rules of your superannuation fund, as these will govern how you can make a nomination.

How do I make a nomination?

If you have a retail or industry superannuation fund, you can typically download a nomination form from the fund's website or alternatively contact the fund to obtain the form. It is free to make a nomination.  

If you have a SMSF, there will typically be a Binding Death Benefit Nomination form annexed to the back of the SMSF Deed. Otherwise, an estate planning lawyer or accountant can prepare a form for you.

Binding or Non-Binding Nominations

There are generally two types of nominations: binding or non-binding.

Binding

It is often advisable to make a binding nomination. This is because it 'binds' the trustee of the superannuation fund to pay your death benefits in accordance with the nomination. The trustee of the superannuation fund must follow the nomination, except in a situation where the nominated person is not eligible to receive your death benefits.

Non-Binding

In contrast, a non-binding nomination will be considered by the trustee of your superannuation fund but will not 'bind' them to pay your death benefits in accordance with the nomination.  The trustee will consider your wishes but they ultimately retain the power to decide how your death benefits should be paid.  A binding nomination is therefore usually preferred to a non-binding nomination, however this will depend on your individual circumstances.

Lapsing or Non-Lapsing Nominations

Most binding nominations are lapsing, which means they are valid for three (3) years from the date of signing, after which time they will lapse. It is therefore critical to ensure that you keep your nominations up-to-date.

In some cases, you may be able to make a non-lapsing nomination. You should contact your superannuation fund to determine whether you can make a non-lapsing nomination. If you have a SMSF, then an estate planning lawyer can review the SMSF Deed to determine whether you can make a non-lapsing nomination.

What if I don't make a nomination or what if my nomination lapses?

If you die without a valid nomination in place, then the trustee of your superannuation fund has the power to decide how your death benefits should be paid. In making this decision, they will take into account the superannuation laws and the rules of the fund. They may also consider the terms of your Will, but are not required to do so.

The fund may distribute your death benefits to:

  • A surviving spouse
  • A dependent person
  • An interdependent person
  • Your estate – This then directs your death benefits into your estate and the terms of your Will then determine how your death benefits are to be paid
  • A combination of the above.

How Sharrock Pitman Legal can help?

If you would like assistance with planning for your superannuation or estate planning generally, our Accredited Specialist Wills & Estates team can provide you with advice and guidance. Please feel free to contact us on 1300 205 506 or email willsandestates@sharrockpitman.com.au.

The information contained in this article is intended to be of a general nature only and should not be relied upon as legal advice. Any legal matters should be discussed specifically with one of our lawyers.

Liability limited by a scheme approved under Professional Standards Legislation.

For further information contact  
Sarah Slattery

Sarah is an Associate Lawyer at Sharrock Pitman Legal. As a member of our Wills and Estates team, Sarah is dedicated to successfully resolving her clients matters in a cost-effective and timely manner. For further information, please contact Sarah directly on (03) 8651 3322.

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