Australia: What happens to your superannuation on your death?

Did you know that superannuation is a non-estate asset, meaning that it's not automatically distributed in accordance with terms in your Will? Below are some things you need to know about who can receive your superannuation death benefits and how to ensure those benefits reach your intended recipients.

So who can receive your superannuation when you die?

There are strict rules contained in the Superannuation Industry Supervision legislation, and typically also in the trust deed applicable to the relevant superannuation fund, which govern how your superannuation death benefits are distributed when you die. It is important to follow these rules so that your superannuation death benefits are paid to those you intend will receive your super.

Upon death, subject to the trust deed of the fund, your superannuation death benefits can only be paid to your superannuation dependants or your estate.

Superannuation dependants include:

  • your spouse (including a de facto spouse)
  • your children (regardless of age)
  • a person with whom you have an interdependency relationship (ie. a close personal relationship between two people who live together, where one or both provides for the financial and domestic support, and care of the other), and
  • a person who is financially dependent on you.

You should note that the tax on superannuation death benefits varies depending on the recipient of the benefits, the components that make up the benefit and how the benefit is paid (for example, lump sum or income stream). The taxation treatment of superannuation death benefits isn't straightforward and you should speak with your financial advisor or accountant when deciding to whom and in what manner you would like your superannuation entitlements to be paid.

How can you ensure your super goes to the right person when you die?

You can nominate the beneficiaries of your super fund by letting the trustee of your fund know in writing. Most superannuation trust deeds allow members to nominate beneficiaries in one of the following ways:

  • Non-Binding Death Benefit Nomination - This type of nomination is only a guide and the trustee of your superannuation fund will have the ultimate discretion as to which superannuation dependant will receive your super. Although the trustee will take into consideration any nomination of beneficiaries that you have made, they aren't not legally bound.
  • Binding Death Benefit Nomination - This is a legally binding nomination and removes the discretion of the trustee of the superannuation fund to determine who your benefits are paid to upon your death. To be valid, a binding death benefit nomination must be signed by you and witnessed by two people who aren't beneficiaries.
  • Binding death nominations are usually only valid for three years, although some superannuation funds provide for non-lapsing nominations.

What happens if you don't have any dependants?

If you don't have any superannuation dependants and you want someone else (for instance siblings, a friend or a charity) to receive your superannuation, you'll need to nominate your estate (that is, the Executor of your Will and preferably via a binding death benefit nomination) as the beneficiary of your superannuation entitlements. Your superannuation will then be distributed according to the terms of your Will.

To ensure your superannuation ends up in the right hands and in the most tax effective way, professional advice should always be sought from your financial adviser or accountant and an experienced estate planning lawyer.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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