Key takeaways
Your super does not automatically follow your will. Without the right nomination, your super fund trustee may decide who receives your benefits.
Millions of Australians may be exposed. Research suggests around 15.7 million Australians do not have a binding death benefit nomination.
Binding and non-binding nominations are very different. A valid binding nomination directs the trustee, while a non-binding nomination generally leaves the final decision with them.
You cannot simply nominate anyone you choose. Super laws restrict eligible beneficiaries, and tax consequences can vary depending on who receives the benefit.
Super should be part of your broader estate plan. Regularly review your nominations and ensure your super, will, insurance and other estate planning arrangements work together.
You may have spent decades building your superannuation, carefully chosen who should inherit your assets and even prepared a legally valid will.
Yet when you die, your super could still be distributed differently from the way you intended.
That is the uncomfortable message from new research suggesting approximately 15.7 million Australians do not have a binding death benefit nomination.
For those people, the final decision about who receives their superannuation, along with any life insurance held inside the fund, may rest with the super fund trustee.
And their will may offer far less protection than they realise.
Your super does not automatically follow your will
Many Australians assume their will determines what happens to everything they own, including their superannuation.
However, super is generally held in a trust and does not automatically form part of a deceased person’s estate. And I'm not talking about self-managed super funds, but industry funds.
So, unless the super is directed or paid to your legal personal representative, usually the executor of your estate, the instructions in your will may have no direct control over it.
This distinction has become increasingly important because superannuation is now one of the largest assets many Australians own, often second only to the family home.
The amount at stake may also include life insurance held through the super fund, meaning the eventual death benefit could be substantially larger than the balance appearing on the latest statement.
How widespread is the problem?
Super Consumers Australia surveyed 5,000 people with money in superannuation and found only 13 per cent reported having a binding death benefit nomination.
Using Australian Taxation Office data showing approximately 18 million people have super accounts, the organisation estimates about 15.7 million Australians may be without a binding nomination.
The survey also found 67 per cent had not been contacted by their fund during the previous 12 months about making one.
This is a remarkable information gap, particularly when the consequences can include long delays, family disputes and a payment that does not reflect the deceased member’s wishes.
ASIC has also found that claims involving no nomination or a non-binding nomination tend to take longer to process.
That can leave grieving families dealing with paperwork, uncertainty and competing claims at the very time they are least equipped to handle them.
Binding and non-binding nominations are very different
A non-binding nomination tells the trustee who you would prefer to receive your death benefit.
The trustee will consider that nomination, but it retains discretion over who receives the money and how it is divided.
A valid binding death benefit nomination carries considerably more weight because it legally directs the trustee to pay the benefit to the eligible beneficiaries you have selected.
Depending on the fund, a binding nomination may lapse after three years or remain in force indefinitely.
If a lapsing nomination expires, it will generally be treated as non-binding, returning discretion to the trustee.
There are also reversionary nominations for certain pension accounts, allowing an eligible beneficiary, commonly a spouse, to continue receiving the pension after the member’s death.
Unfortunately, super funds don’t all provide the same choices, forms or procedures. Some reportedly do not offer binding nominations at all.
You cannot nominate absolutely anyone
Even with a binding nomination, superannuation law restricts who can receive the benefit directly.
Eligible beneficiaries generally include your current spouse or partner, your children, someone financially dependent on you, a person with whom you have an interdependency relationship, or your legal personal representative.
This can create problems for single people who want their super to go to a sibling, niece, nephew, friend or another person who does not meet the legal definition of a dependant.
One possible approach is to nominate your legal personal representative so the super is paid into your estate and distributed under your will.
However, this needs to be coordinated with properly drafted estate planning documents, and there may be tax, timing, creditor-protection and family provision implications.
In particular, super paid to financially independent adult children can be taxed differently from benefits paid to a spouse or another tax dependant.
This is one reason beneficiary nominations should form part of a broader estate plan rather than being treated as a simple administrative form.
What should you do now?
I suggest you start by contacting your super fund and asking which death benefit nominations it permits.
Check whether your current nomination is binding or non-binding, whether it has expired and whether all your nominated beneficiaries remain eligible.
Follow the fund’s signing and witnessing requirements precisely because a technical mistake can invalidate the nomination.
You should also review the nomination after a marriage, separation, divorce, birth, death or major change in your financial circumstances.
For lapsing nominations, place a renewal reminder in your calendar well before the expiry date.
Most importantly, make sure your super nomination, will, insurance arrangements, trusts and intended distribution strategy work together.
For Australians who have spent a lifetime building wealth, choosing beneficiaries should involve more than writing names in a will and assuming everything has been handled.
Your super fund may currently have the final say, and millions of Australians probably do not realise it.
Note: This article contains general information and should not be considered personal financial, taxation or legal advice. Estate planning and superannuation death benefits can be complex, so obtain advice appropriate to your circumstances.
