Superannuation and Estate Planning: Why Your Beneficiary Nomination Matters
Superannuation and Estate Planning:
Why Your Beneficiary Nomination Matters
When most Australians think of estate planning, their focus is often on wills and property. But what about your superannuation?
Many are surprised to learn that superannuation death benefits aren’t automatically covered by your will.
Instead, your super fund trustee decides how to distribute your super unless you’ve made a valid beneficiary nomination.
This article will explore how superannuation fits into your estate plan, why binding nominations are crucial, and the most common misunderstandings that could impact your loved ones.
For those looking to protect assets and manage distributions more strategically, we also recommend reading our previous article on Testamentary Trusts for more insight.
The Role of Superannuation in Estate Planning
Superannuation is one of the largest assets many Australians hold by the time they retire.
Yet, because it is held in trust by your superannuation fund, it doesn’t automatically form part of your estate when you die.
This makes it a unique component of estate planning that requires separate attention.
Key Facts:
Super is managed by a trustee, not you personally.
Your super death benefit may include your super balance and any life insurance held within the fund.
The trustee will decide who receives your benefit unless you’ve made a valid beneficiary nomination.
That’s why estate planning with super must include thoughtful consideration of how and to whom your super will be paid.
What Is a Beneficiary Nomination?
A beneficiary nomination is a formal direction you give to your super fund, indicating who you want to receive your superannuation death benefit when you pass away.
There are generally three types:
1. Binding Nomination
This legally compels the trustee to pay your super to the nominated beneficiary (provided the nomination is valid at the time of death).
It must be:
Signed and witnessed
Updated every three years (unless non-lapsing)
Made to eligible dependants or your estate
2. Non-binding Nomination
This serves as a guide to the trustee, who retains discretion to determine who should receive the benefit.
While your wishes are considered, they may not be followed.
3. Reversionary Nomination
Used in income stream accounts (like a pension), this passes the income stream to a nominated dependant upon your death.
Why Binding Nominations Matter
Without a binding nomination, your super fund trustee may distribute your super based on its own assessment of your relationships and dependencies at the time of your death.
This could lead to:
Disputes among family members
Delays in processing the death benefit
Payments going to unintended recipients
Case in Point:
Let’s say your will nominates your adult children as beneficiaries.
But your super fund trustee pays the benefit to your de facto partner because you didn’t update your super nomination.
The outcome: your children may miss out entirely.
Estate Planning
Who Can You Nominate?
Under Australian law, you can only nominate specific individuals for superannuation death benefits.
These include:
A spouse (including de facto and same-sex partners)
Children (of any age)
A person financially dependent on you
A person in an interdependent relationship with you
Your legal personal representative (i.e. your estate)
If you wish for your super to be dealt with according to your will, you must nominate your estate as the beneficiary.
Superannuation Death Benefits and Tax
Tax implications for superannuation death benefits depend on:
Who receives the benefit (dependants vs non-dependants)
Whether it is paid as a lump sum or income stream
The tax-free and taxable components of the super balance
Generally, payments to dependants (as defined by tax law) are tax-free.
Payments to non-dependants may attract tax on the taxable component, usually up to 15% plus Medicare levy.
Estate Planning
Common Misconceptions
❌ “My will covers my super.”
Not true. Unless your super is paid into your estate via a nomination, your will won’t govern who receives it.
❌ “I set up my nomination years ago—it’s fine.”
Binding nominations often lapse every three years unless explicitly non-lapsing.
They must also reflect current personal circumstances (e.g. divorce).
❌ “The fund knows who I want it to go to.”
Trustees are bound by law, not assumptions.
A formal nomination is the only way to ensure your wishes are followed.
Integrating Super into Your Estate Plan
To effectively incorporate super into your estate planning strategy, follow these steps:
Check your current nomination status with your fund.
Review and update nominations to reflect your current wishes.
Ensure they are binding and correctly witnessed.
Consider naming your estate as the beneficiary if using a testamentary trust or will-based structure.
Seek advice from a financial adviser or estate planning solicitor.
When a Testamentary Trust and Super Work Together
A common strategy involves directing superannuation into a testamentary trust, which is then distributed to children or dependants under protective conditions.
This offers both asset protection and taxation advantages.
Superannuation is often one of the most valuable components of your legacy, yet it’s frequently misunderstood in estate planning.
A binding nomination is a simple but powerful tool to make sure your superannuation death benefits go to the right people, in the right way.
To build a well-rounded estate plan that includes trusts, tax considerations, and super, work with a professional who understands your goals.
By proactively managing your superannuation alongside your will and other assets, you’ll secure the financial future of your loved ones—and honour your intentions.
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