Superannuation and Death: Why Your Will Is Not Enough

When someone passes away, their family often assumes the will covers everything. For superannuation, it does not. That gap can have significant consequences. Brooke Febo, Solicitor at Dawson Pouwhare says,

"Superannuation is one of the most commonly misunderstood areas of estate planning. People spend time carefully preparing a will and then leave their superannuation completely unaddressed. Those are two separate legal questions."

Why Super Is Not Part of Your Estate

Under superannuation law, a person's super is held in trust by the trustee of their fund. It does not automatically form part of a deceased estate and is not governed by the terms of a will.

Unless the death benefit is directed to the estate via a valid nomination, the super fund trustee has discretion to decide who receives it. That decision may not align with what the deceased would have wanted.

"We have seen situations where a person's will left everything to their children, but their superannuation, which was their most significant asset, went elsewhere because there was no binding nomination in place," Brooke says. "That is a painful outcome that proper planning would have prevented."

Binding vs Non-Binding Nominations

There are two main ways to direct the payment of superannuation after death.

A Binding Death Benefit Nomination legally requires the trustee to pay the benefit to the nominated person, provided the nomination is valid and current. Binding nominations typically lapse every three years unless they are non-lapsing, and they must nominate either a dependant as defined under the Superannuation Industry (Supervision) Act 1993, or the legal personal representative of the estate.

A Non-Binding Nomination provides guidance to the trustee but does not bind them. The trustee may depart from a non-binding nomination based on their own assessment of the circumstances.

"A non-binding nomination is better than nothing, but it is not the same as control," Brooke explains.

Who Counts as a Superannuation Dependant?

The definition of dependant for superannuation purposes is specific and does not necessarily mirror what most people would consider a dependent relationship. It includes a spouse or de facto partner, children of any age in some circumstances, anyone in an interdependency relationship with the deceased, and financial dependants.

Nominating someone who falls outside these categories, such as a parent, sibling or friend, may result in an invalid nomination, which triggers trustee discretion.

Common Issues That Arise

Lapsed or invalid nominations are among the most common problems in estate matters. A binding nomination that has expired or incorrectly names a non-dependant can result in the trustee distributing the super in a way the deceased never intended.

Tax is another consideration. Death benefits paid to non-dependants under the Income Tax Assessment Act 1997 may be taxed at up to 32 per cent, meaningfully reducing what the intended beneficiary actually receives.

In blended family situations, the stakes are even higher. When super is paid directly to a dependant rather than to the estate, it sits outside the will entirely, which can create unexpected and unfair outcomes for other beneficiaries. One way to manage this is to nominate the legal personal representative of the estate as the beneficiary, so the super falls under the will and is distributed according to its terms.

What to Do

Review your binding death benefit nomination regularly. Confirm it is current, correctly names eligible dependants, and aligns with your broader estate plan.

If your superannuation is a significant asset, and for many people it is their largest, it deserves the same careful attention as your will.

"Estate planning is not complete until superannuation has been addressed," Brooke says. "They need to work together."

Dawson Pouwhare Legal & Conveyancing provides estate planning advice across Lake Macquarie and the Hunter. To ensure your superannuation and estate plan are properly aligned, contact our team on (02) 4954 8666.