For many Australians, superannuation is one of their largest assets. Despite this, it is often overlooked during estate planning.
A common misconception is that your superannuation will automatically be distributed under your Will when you die. In most cases, this is not correct. Superannuation is held by the trustee of your superannuation fund and is generally dealt with separately from your estate.
Why is superannuation treated differently?
Unlike assets you own personally, such as real estate, bank accounts or shares, superannuation is held by a trustee on your behalf.
Because the trustee controls the fund, your superannuation death benefit is not automatically governed by your Will. Instead, the trustee must distribute the benefit in accordance with the fund’s rules, superannuation law and any valid death benefit nomination you have made.
Without appropriate planning, your superannuation may not pass to the people you intended.
Who can receive your superannuation?
Under superannuation law a death benefit can generally be paid to:
- Your spouse or de facto partner;
- your children;
- a person who is financially dependent on you at the time of your death; or
- your legal personal representative (your estate).
If your benefit is paid to your legal representative, it becomes an estate asset and can then be distributed in accordance with your Will.
Whether this is the most suitable approach will depend on your broader estate planning objectives, family circumstances and tax considerations.
What is a death benefit nomination?
A death benefit nomination allows you to tell the trustee of your superannuation fund who should receive your superannuation when you die.
Having a valid nomination can provide certainty, reduce the risk of disputes and ensure your superannuation is distributed in accordance with your intentions.
Retail and Industry funds vs SMSFs
The importance of a valid death benefit nomination applies to both retail and industry superannuation funds and self-managed superannuation funds (SMSFs), but the rules are not always the same.
In retail and industry funds, the trustee will generally administer death benefits in accordance with the fund’s governing rules and any valid nomination in place.
For SMSFs, additional considerations can arise, including who controls the fund following a member’s death and whether the fund’s trust deed contains specific provisions regarding death benefit nominations. Depending on the deed, an SMSF may permit non-lapsing binding nominations or other arrangements not commonly available in larger public offer funds.
Because of these differences, SMSF death benefit planning should be considered alongside succession planning for control of the fund.
Keep your nomination current
If you do not have a valid death benefit nomination in place at the time of your death, the trustee will determine who receives your superannuation in accordance with the fund’s rules and relevant legislation. This can result in delays, disputes between family members, and outcomes that may not align with your intentions
It is important to review your death benefit nomination regularly, particularly following significant life events such as:
- Marriage, separation or divorce;
- Commencing or ending a de facto relationship
- The birth of children;
- Death of a nominated beneficiary; or
- Significant changes to your personal or financial circumstances.
Regular reviews can help ensure your nomination remains valid, reflects your wishes and continues to form part of an effective estate planning strategy.
How we can help
Our Future Planning team can assist with reviewing your superannuation arrangements, advising on death benefit nominations and ensuring they work together effectively and reflect your objectives.
For further information, please contact Lilly Macintyre at lilly@morganenglish.com.au
