Superannuation and your estate

Why super sits outside your Will

Superannuation is held in trust by your fund trustee - not by you directly. Legally, it is not part of your estate. When you die, the fund trustee has the power to decide who receives your superannuation death benefit, unless you have made a binding nomination that removes that discretion.

This surprises many people. A Will is a comprehensive document that covers your financial affairs - but it cannot reach assets you don’t legally own. Your super fund has its own separate beneficiary nomination process, entirely independent of anything in your Will.

Writing a Will without checking your super fund’s beneficiary nominations means a potentially significant asset may be distributed at the fund trustee’s discretion. Check the nomination options your fund offers.

Binding Death Nominations and other fund nominations

Your super fund may offer different types of beneficiary nominations. A Binding Death Nomination (BDN) is a formal instruction that legally compels the trustee to pay your death benefit as directed - unlike a non-binding nomination, which is merely a suggestion the trustee can override.

To make a BDN valid:

• You must nominate only eligible dependants or your legal personal representative (your estate)
• The nomination must be in writing and signed by you in front of two witnesses
• Lapsing binding nominations generally expire after three years and must be renewed. Some funds offer non-lapsing binding nominations. Check the rules of your super fund.

Who can you nominate?

The Superannuation Industry (Supervision) Act restricts who can receive a death benefit directly. Eligible dependants include:

If you nominate your estate (your legal personal representative), the super proceeds will flow into your estate and be distributed under your Will - giving you more control but potentially triggering different tax treatment depending on who the ultimate beneficiaries are.

The renewal trap

Lapsing binding nominations generally expire after three years. If yours has expired, the nomination becomes non-binding and the trustee regains discretion over where your super goes. Some funds offer non-lapsing binding nominations that do not expire - check the rules of your super fund.

This catches people out. You may have made a nomination years ago, assumed it was taken care of, and never thought about it again - while the renewal deadline quietly passed.

A practical habit: treat your BDN review the same way you treat your annual tax return. Check it each year alongside any changes to your personal circumstances.

What about life insurance?

Many superannuation accounts include default life insurance. The same rules apply - the insurance payout is paid to your fund and then distributed according to your BDN or at the trustee’s discretion. It does not automatically flow to the beneficiaries named in your Will.

If you hold life insurance outside of super (a standalone policy), the insurer will pay the benefit according to the beneficiary you nominated directly with them - again, completely separate from your Will.

A note on tax

Superannuation death benefits may be taxed depending on who receives them and how they were held in the fund. Benefits paid to tax dependants (generally spouses, minor children, and financially dependent individuals) are tax-free. Benefits paid to adult children who were not financially dependent are typically taxed at up to 17% (including Medicare levy) on the taxable component.

Routing super through your estate rather than directly to beneficiaries can affect tax outcomes. For larger superannuation balances, specialist tax advice is worth obtaining before deciding on your BDN strategy.

A Will is part of the picture

Start with a complete, state-specific Will - then check your BDN with your super fund.