Your super after death: How to get your savings into the right hands fast

In this guide

You don’t own your super assets
Types of death benefit nomination
SMSFs and binding death benefit nominations
Who can I nominate as a beneficiary?
Estate planning and death benefit nominations
Superannuation Proceeds Trusts (SPTs)

Those of us who have a valid Will in place often assume our executors will take care of all the necessary paperwork and distribute all our assets, including super, to our chosen beneficiaries as we have instructed.

But when it comes to your super, it’s not that simple. Your Will doesn’t automatically decide who gets your retirement savings. It’s up to the trustee of your super fund to make the final decision, and without the right guidance from you the process can be prolonged and distressing for your loved ones.

To ensure you have a say in who gets your super when you die, and that your wishes are carried out quickly, you need to make the most effective beneficiary nomination for your circumstances.

So how do you go about doing that?

Need to know: A 2022 decision by the High Court has changed the rules in relation to using a binding death benefit nomination if you are a member of an SMSF. Check out the section below on binding nominations in an SMSF for more details.

You don’t own your super assets

When you make a valid Will, it governs the distribution of the assets you own personally, like your house, car and bank accounts. What a lot of people don’t realise is that you don’t own your super account personally. It’s held in trust for you by the trustee of your super fund.

Learn about super fund trustees.

Under Australia’s super laws, the trustee of your super fund is the one makes the decision about who receives your super death benefit. .

To guide the trustee on who you would like to receive your death benefit, super funds encourage you to fill in a form or make a selection online to nominate your desired beneficiary.

What isn’t always as clear as it could be is the different types of nomination that are available, and how choosing the wrong option can lead to extensive delays or worse – payments to beneficiaries you did not nominate.

As part of their role as the financial services regulator responsible for consumer protection, the Australian Securities and Investments Commission (ASIC) wrote to super fund trustees in May 2024 urging them to improve their communication on this issue.

Types of death benefit nomination

There are four main types of death benefit nomination offered by super funds. It’s important to understand the differences so you choose the one most suitable for your personal situation.

When nominating your beneficiaries you also need to ensure you provide clear instructions and that you have nominated beneficiaries that are eligible to receive your benefits under super law (see Who can I nominate as a beneficiary later in this article).

If your nomination is not valid and clear it can’t be followed. For example, if you nominate two or more beneficiaries, you must clearly indicate the proportion that should be paid to each one and the total must add up to 100%.

Your nomination can be renewed, changed or revoked at any time.

1. Preferred (non-binding) nomination

This is the most common type of death benefit nomination and is offered by most super funds. A preferred nomination can be made online or with a form that does not require witnesses to sign. While this is the simplest nomination to make, it provides the least certainty and leads to the most delays.

With this type of nomination, the trustee of your super fund retains the final say over which of your beneficiaries receives your super and in what proportions. Your nomination is a guide to the trustee about your wishes, but forms only part of their decision-making process.

Most often, the trustee will gather information about your personal situation and consider all your potential beneficiaries, along with your nomination, to determine the most appropriate distribution.

This process can take many months and, less frequently, a year or more. Delays are extended if the fund receives complaints from your dependents about their proposed distribution, if your personal situation is complex, or if the fund has difficulty gathering information from all your potential beneficiaries.

The trustee may also decide to pay your death benefit directly to your Legal Personal Representative (LPR). If this occurs and you don’t have a valid Will, your super death benefit and the rest of your estate will be distributed as required under the intestacy laws applying in your state. Some funds automatically pay your LPR if you do not have a valid binding beneficiary nomination in force.

Need to know: Death benefit disputes

Disputes often arise when your beneficiary nomination is not valid, or you have made a preferred nomination.

These situations can lead to protracted and bitter battles between your potential beneficiaries. These disputes often end up being resolved by the Australian Financial Complaints Authority (AFCA), which is the body responsible for managing superannuation complaints that cannot be resolved directly with the fund.

AFCA is not responsible for disputes over the distribution of a deceased SMSF member’s super death benefit. These must be resolved by going through the courts, which can be time consuming and ends up wasting some of your death benefits on legal costs.

2. Lapsing binding death benefit nomination

If you make a valid binding nomination, the trustee of the fund must pay your super death benefit to the beneficiaries you nominate, in the proportions you listed in your nomination. A binding death benefit nomination overrides the normal trustee discretion on payment of a super death benefit.

Lapsing binding nominations expire after three years unless they are renewed. If you don’t renew your nomination, your fund trustee will consider you have made a preferred death benefit nomination and will have the final say over which of your beneficiaries receives your super and in what proportions.

The rules applying to members of an SMSF are different (see SMSF section below).

A binding nomination provides certainty about the distribution of your benefit, which can be useful for tax planning and broader estate planning. For example, beneficiaries eligible to receive super tax free could be nominated while other dependants receive alternative assets.

Having a binding nomination accelerates the process of paying out your super. The trustee does not need to investigate your personal circumstances, so they can make payment as soon as they have the relevant paperwork. This usually includes a certified copy of your death certificate and evidence of your relationship with the beneficiaries you have nominated, for example, a marriage certificate for a spouse and birth certificates for children.

Delays are still possible if there is difficulty in obtaining the required documentation or validating your relationships. This commonly occurs if a coronial inquiry postpones issuing the death certificate, or if there is difficulty in verifying whether a de-facto relationship ended or was ongoing. Being legally married can assist your spouse to receive benefits in a timely way.

Need to know: Valid nominations

For a lapsing binding death benefit nomination to be valid, you must make it in writing, sign and date it, and have it witnessed by two people over 18 who are not nominated as beneficiaries The rules applying to members of an SMSF are different (see SMSF section below).

Most super funds have a form on their website you can download, sign, and return.

3. Non-lapsing binding nominations

A non-lapsing binding nomination does not expire. It remains in place until you cancel it or replace it with a new binding death benefit nomination. It is binding on the trustee unless it is not valid, in the same way as a lapsing binding nomination.

This means you do not need to update your death benefit nomination in writing every three years. With a lapsing nomination, if you forget to renew your nomination or lack the legal capacity to make a new nomination when it expires (such as if you are suffering from dementia), your super fund trustee once again is given discretion to decide who receives your super death benefit (and any life insurance in your super account).

Non-lapsing binding nominations in funds other than SMSFs have been rare in the past, but more providers are now beginning to offer them.

We checked the 20 largest super funds and found that of those that are available to the public, UniSuper, Colonial First State, Aware Super, AMP, Rest (pension members only), MLC, Mercer, Brighter Super, Macquarie and ANZ/OnePath all offer non-lapsing binding nominations. Some of these funds even permit you to make the nomination online.

This list is not exhaustive and could change, so you need to check with your fund to see if this option is available to you. If you have an SMSF, see the SMSF section below.

Super tip

If you make a death benefit nomination, regularly review your nomination – preferably annually – to ensure it’s still right for your personal circumstances.

When you make a valid binding nomination, the trustee of your super fund is required to follow it, even if it is no longer appropriate. So, for example, if you are separated but not yet divorced, and your spouse is nominated as your beneficiary, the trustee must pay your death benefit to them unless you amend or revoke your benefit nomination.

4. Reversionary nomination

If you receive a super pension or income stream, most super funds allow you to make a benefit nomination so the income stream will automatically revert to a particular beneficiary – usually your spouse – on your death.

With this type of death benefit nomination, the fund trustee is required to continue paying the super pension to your beneficiary if your benefit nomination is valid. This can be a simple way to ensure your spouse receives your death benefit, as the trustee has no discretion in the matter.

In some cases, reversionary nominations can only be made when you start a super pension, so if you already have a pension in place you may need to stop and restart it to make it reversionary.

Learn more about reversionary pensions.

Warning

Stopping and restarting a super pension that commenced before 1 January 2015 to make it reversionary can have significant implications. It could affect both your eligibility for social security benefits and your level of aged care fees.

ALWAYS seek advice from a licensed professional such as an independent financial adviser before making this type of decision.

SMSFs and binding death benefit nominations

If you are an SMSF member and want to make a binding nomination, you need to check your fund’s trust deed to see if it allows this type of benefit nomination, as not all SMSF trust deeds do. To be valid, your nomination also needs to be in line with the governing rules of the SMSF.

In June 2022, the High Court handed down a decision in Hill v Zuda Pty Ltd that changed the rules for SMSFs in relation to these nominations. The Court decided regulation 6.17A of the SIS Regulations does not apply to nominations made for an SMSF member.

This means an SMSF, if the fund’s trust deed allows, can have a binding nomination that does not lapse every three years and does not need to be witnessed by two people.

SMSF trustees should always check the fund’s trust deed when a member makes a nomination to ensure it is valid and will bind the trustee when dealing with the member’s death benefit. Following Hill v Zuda, all SMSFs should review any existing binding nominations made by members to ensure they remain appropriate and in line with the fund’s trust deed.

Good to know: A cascading binding nomination

If your SMSF permits a binding nomination, it may be possible to include provisions allowing for a cascading beneficiary nomination. A cascading nomination can be used to cover possibilities such as the death, remarriage or bankruptcy of your beneficiary.

By nominating a second and even subsequent beneficiaries, you can avoid the risk of your death benefit nomination becoming invalid. An example of this situation is if spouses nominate each other as their sole beneficiary and they both die at the same time. A deceased person cannot be a death benefit dependant, so the nomination becomes invalid and the trustee decides who receives the death benefit.

If a cascading nomination indicated that in the event the spouse was deceased or had been divorced, then benefits should flow in equal shares to children (for example), then the nomination would remain valid and in force.

Need to know: Your Will and super death benefits

Your Will governs the distribution of your super death benefit only if your benefit is paid to your legal personal representative (LPR). Your LPR is the executor of your Will, not your lawyer.

This usually only occurs if the trustee of your super fund decides to distribute your benefit to your LPR, or if you have made a valid binding death benefit nomination asking the fund to distribute your super death benefit in this manner.

Who can I nominate as a beneficiary?

A key rule for making a valid death benefit nomination is you must nominate one or more of your dependants under super law, or your Legal Personal Representative (LPR).

Superannuation law considers a person to be your dependant if – at the time of your death – they were:

Your spouse or de facto spouse, including same sex
One of your children of any age
In an interdependency relationship with you
Financially dependent on you (a dependant in the ordinary sense of the word).

Under super law, you are in an interdependency relationship if you and the other person live together, have a close personal relationship and at least one of you provides the other with financial support, domestic support and personal care. For more details on interdependency relationships, see the ATO website.

Need to know: Super law versus tax law

Confusingly, there are different definitions for who is deemed your dependant under super law and tax law.

Super law governs who is eligible to receive a super death benefit from a super account, while tax law determines how much tax your beneficiary will be required to pay.

The amount of tax paid by a beneficiary of your super death benefit depends on whether the beneficiary is a tax dependant, and whether the money is paid as a lump sum, income stream or a mixture of both.

Learn about tax and super death benefits.

Estate planning and death benefit nominations

A valid death benefit nomination is an important part of managing how your estate will be distributed after your death.

Estate planning is a general term used to describe the process of organising your financial affairs so your wealth is efficiently distributed in a tax-effective manner to your chosen beneficiaries. It includes having properly documented and valid Wills, enduring powers of attorney and testamentary trusts in place.

Learn about the difference between standard and testamentary trust Wills.

Even if you’re not wealthy, your estate plan should be regularly reviewed to ensure it considers your changing family situation (such as divorce or a new family member), financial assets and relevant legislation.

If you have an SMSF, having an effective estate plan in place is even more important to ensure your wishes are carried out.

Learn about estate planning and SMSFs.

Superannuation Proceeds Trusts (SPTs)

One estate planning issue to consider is whether the Will should establish a Superannuation Proceeds Trust (SPT). This is a testamentary trust that is specifically designed to hold super death benefits. Super can be directed into your estate to be distributed according to your Will by making a binding nomination in favour of your LPR.

An SPT may be appropriate if there is concern a beneficiary may overspend their inheritance, as the appointed trustee will control the amount and frequency of distributions from the SPT.

An SPT may also reduce tax on the earnings of the benefit for minor children who are beneficiaries.

All beneficiaries of an SPT must be dependants under tax law – see our guide to tax on super death benefits.

Case study: Superannuation Proceeds Trust

Marie has been married to her husband Charles for 30 years and wants to leave him her super benefit. Unfortunately, Charles is an alcoholic and gambler, and Marie is concerned he would spend such a large lump sum unwisely if he had unrestricted access to it.

Marie uses her Will to specify that a Superannuation Proceeds Trust (SPT) should be established with Charles as the beneficiary. Marie can choose a suitable trustee to manage the trust and control the amount Charles can access.

Marie nominates her Legal Personal Representative as her beneficiary for super using a non-lapsing binding nomination, ensuring her super will flow to her estate and be distributed using the SPT.