Superannuation is often one of the largest assets a person holds, yet many Australians do not realise it does not automatically form part of their estate. Because superannuation is held in a trust and governed by superannuation legislation and fund rules, the benefit may not be distributed in accordance with your Will unless the proper arrangements are in place.
Ensuring your nominations are valid, current, and consistent with your broader estate plan is essential. The following overview highlights the key issues to consider.
Superannuation Does Not Automatically Pass Under Your Will
Superannuation is held in a trust, and the Trustee of the fund decides who receives your death benefit unless a valid Binding Death Benefit Nomination (BDBN) directs otherwise.
If no valid nomination exists, the Trustee may distribute the benefit to:
- Your dependants (as defined under superannuation law), or
- Your legal personal representative (your estate).
This means the wishes expressed in your Will may not be followed unless the Trustee pays the superannuation into your estate.
Binding Death Benefit Nominations (BDBNs)
A BDBN instructs your super fund to pay your death benefit to:
- An eligible dependant (spouse, de facto partner, children, or a person in an interdependent relationship), or
- Your estate.
To be valid, a BDBN must:
- Be made on the fund’s approved form
- Be correctly signed and witnessed
- Name only eligible beneficiaries
- Be renewed if it lapses (most funds require renewal every three years)
A defective nomination (e.g., missing percentages or ineligible beneficiaries) is often treated as invalid, restoring full discretion to the Trustee.
Binding vs Non-Binding Death Benefit Nominations
Binding Death Benefit Nomination (BDBN)
A Binding Nomination is a compulsory direction. If valid, the Trustee must pay your superannuation death benefit exactly as you have instructed.
Key Features
- Trustee must follow your instructions (no discretion).
- Must be signed and witnessed correctly.
- Must specify eligible beneficiaries and percentages.
- Usually expires every 3 years unless non-lapsing is permitted by the fund.
When it is useful
- You want certainty about who receives the benefit.
- You want to direct your super to your estate for testamentary trust planning.
- You wish to avoid disputes among family members.
Non-Binding Nomination
A Non-Binding Nomination express a preference only. It therefore guides but does not compel the Trustee.
Key Features
- Trustee has complete discretion.
- The Trustee will consider your nomination, but:
- May instead pay a dependant not listed, or
- May choose to pay your estate.
- Not all funds require renewal, but updating is recommended.
- It is easier to complete and less formal than a BDBN.
When it is useful
- Your family or financial circumstances are likely to change.
- You trust the Trustee to determine who is most financially dependent on you.
Tax Consequences for Different Beneficiaries
Superannuation death benefits may be taxed differently depending on the relationship between the deceased and the beneficiary.
Tax-free beneficiaries include:
- Spouse or de facto partner
- Former spouse in limited circumstances
- Dependent children under 18
- A person who was financially dependent on the deceased
- A person in an interdependent relationship
Taxable beneficiaries may include:
- Adult children who are independent
- Other non-dependants receiving the benefit through the estate
When planning your estate, it is important to understand these tax implications to avoid unintentionally reducing the benefit passed to your loved ones.
Should Your Superannuation Be Paid Into Your Estate?
Directing superannuation into your estate through a valid BDBN allows you to:
- Distribute the funds according to your Will
- Use testamentary trusts for tax-effective planning and assets protection
- Protect vulnerable beneficiaries (e.g., young children or individuals with disabilities)
However, this approach also requires:
- A carefully drafted Will
- Consideration of creditor risks
- Coordination between your estate planning lawyer and financial advisor
Common Misunderstandings
Many clients mistakenly assume:
- “Super automatically goes to my spouse.”
- “I have mentioned it in my Will, so it will follow that.”
- “My nomination never expires.”
Superannuation is governed by trust law and fund rules. Your Will alone does not control its distribution.
Why Legal Advice Is Essential
Estate planning involving superannuation requires careful coordination between:
- The terms of the super fund trust deed
- Your Binding Death Benefit Nomination
- Your Will and any testamentary trusts
- Tax considerations for your intended beneficiaries
At W & G Lawyers， we assist clients in:
- Reviewing their superannuation fund rules
- Preparing or renewing Binding Death Benefit Nominations
- Integrating superannuation into a comprehensive estate plan
- Structuring arrangements to protect vulnerable or non-dependent beneficiaries
- Resolving trustee decision disputes and deceased estate claims
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Disclaimer
This article contains general information only and does not constitute legal advice.
You should obtain independent legal advice tailored to your specific circumstances before taking any action.