What happens to superannuation when someone dies?

Superannuation is often a person’s largest asset, yet it is frequently excluded from their estate planning. Understanding how Super Death Benefits work is critical to ensuring your wealth reaches your loved ones.

1. The “Non-Estate” Asset

By law, superannuation is held in a trust. The money belongs to the Trustee of the fund, not to you personally. Therefore, a clause in your Will saying “I leave my super to my sister” is generally not legally binding on the super fund.

2. Nominations: The Key to Control

To control your super, you must use one of three nomination types:

A. Non-Binding Nomination

A suggestion to the Trustee. They will consider your wishes but have the final legal discretion to pay someone else (like a dependent you left out).

B. Binding Death Benefit Nomination (BDBN)

A legal command. The Trustee must pay the person you named, provided they are a “legal dependent” or your “Legal Personal Representative” (your Estate).

• Warning: Many BDBNs “lapse” every 3 years. If yours has expired, it becomes non-binding.

C. Reversionary Pension

Typically used between spouses. The pension just keeps paying to the survivor automatically.

3. Who Can Receive Super?

You cannot leave your super to just anyone (like a friend or a charity) directly from the fund. You can only nominate:

• Spouse (including de facto).
• Children (any age).
• Financial Dependents.
• Interdependent Relations (people who live with you and provide domestic/personal support).
• Your Estate: By nominating your “Legal Personal Representative,” the money goes into your Will and follows your Will’s instructions.

4. Tax Traps

• Dependents (Spouse/Minor Children): Usually receive the death benefit tax-free.
• Non-Dependents (Adult Children): Adult children are often NOT considered “tax dependents.” They may have to pay 15% or 17% tax on the “taxable component” of your super. For a $500,000 balance, this can be a $75,000 tax bill.

Related Topics

• Dying Without a Will (Intestacy)
• Importance of a Testamentary Trust
• Estate Planning Practice Area

Secure Your Super

We help clients audit their super nominations and draft “Lapsing” or “Non-Lapsing” BDBNs as part of a comprehensive estate plan to minimize tax and maximize certainty.

Check your nominations. Contact Bell & Senior today. Call (07) 5532 8777.