What Happens to my Superannuation When I Die?

Wills and Estates Lawyer Fiona Fagan outlines some critical information on superannuation and estate planning.

It does not make up part of your estate.

Most of our clients are shocked when we tell them that their super does not make up part of their estate and even if you have a validly drafted will, superannuation does not necessarily form part of the estate and may not pass to the beneficiaries in your will.

This is particularly important as superannuation is usually the most valuable asset a person has.

You don’t own your super!

The reason for this is that you do not own your superannuation at the date of your death, it is held on Trust for you by the Trustees of your superannuation fund. If you die, the trustees decide what happens to your super. So how do you make sure your super goes where you want it to?

Binding Death Nomination – A Will for your Super

The answer may be a Binding Death Benefit Nomination which is like a ‘will for your super’. It’s best to seek expert advice on this for your particular situation. They must be in writing and properly witnessed and will vary from fund to fund whether they are retail, industrial or self-managed.

The binding nomination tells the super fund trustee how a death benefit is to be distributed in the event of the member’s death. The trustee has to follow it.

There are choices to consider: There may be reasons to direct benefits to your estate so that it is paid pursuant to your Will. Equally, in some circumstances there may be a significant tax advantage for your dependents if they are nominated to directly receive the Super. If there’s no such nomination the trustee decides how benefits are distributed. Not every super fund – especially industry funds – allows such nominations. Best check before committing yourself.

A Binding Death Nomination must be witnessed by two people who are not beneficiaries and must be updated every 3 years.

Tax Trap

Another trap is if you leave your super to your adult children who are financially independent; they could be hit with high taxes at up to 30%.

Beneficiaries Missing Out

It’s important to remember a binding nomination is different to a Will. For instance, Paul, a widower dies with $1million in super and a Will dividing his estate equally among his three children. But he has no binding nomination, and under the legislation the super trustee is bound to pay the benefit to ‘dependents’. If one of the children (even if an adult) is classified as being dependent upon Paul but the other children are not, then the trustee could exclude the others even though Paul’s Will clearly shows he wanted all his children to get an equal share.

Our Wills and Estate’s team can offer you a number of options in order to minimize the tax payable on your superannuation death benefit and to ensure that your super does reach those who you intend to benefit.

For further information or assistance with your legal matter contact us.

On August 1, 2017, the Relationships Register commenced in South Australia, giving greater legal recognition to LGBTQI and de facto relationships. To find out how the Register impacts your will click here.