One paperwork mistake could cost your family $600k
Hundreds of thousands in super can end up with the wrong person. Even if your will says otherwise.
A string of court decisions, including a landmark 2022 High Court ruling, have exposed a painful reality for Australian families: your superannuation does not automatically form part of your estate. Without careful planning, hundreds of thousands of dollars can end up in the hands of someone you never intended to benefit, and the law may offer no remedy.
For many Australians, super is their second-largest asset after the family home - often worth hundreds of thousands of dollars.
Yet unlike a bank account or property, super exists in a trust structure.
When you die, your fund's trustee, not your will, decides where the money goes, unless you have taken specific steps to direct it.
Key takeaway: Without a valid binding death benefit nomination, your super may not go to the person you expect.
The binding death benefit nomination
The mechanism that gives members control is the binding death benefit nomination, or BDBN.
Where a valid BDBN is in place, the trustee must pay the benefit in accordance with your direction.
Without one, the trustee holds a broad discretion to distribute the benefit among your "dependants": spouse, children, or anyone in an interdependency relationship.
Under the Superannuation Industry (Supervision) Act 1993 (Cth), a standard BDBN is only valid for three years and must be renewed.
Let it lapse, and you lose all control.
The high court settles the SMSF question
In Hill v Zuda Pty Ltd [2022] HCA 21, the High Court confirmed that the three-year lapsing rule for BDBNs under the SIS Regulations does not apply to self-managed super funds.
This means SMSF members can make a non-lapsing BDBN, one that remains valid indefinitely, provided their trust deed permits it. The decision was a win for certainty, but it also highlighted a trap: if your SMSF deed does not expressly authorise a non-lapsing nomination, you may still be caught by the default lapsing rules.
When good intentions are not enough
The human cost can be severe.
In Re Marsella; Marsella v Wareham (No 2) [2019] VSC 65, a deceased woman's daughter became sole trustee of the family SMSF and resolved to pay the entire $450,000 death benefit to herself, overlooking the deceased's husband of 32 years.
The Court removed the daughter as trustee, finding the discretion had not been exercised in good faith.
But even after winning, the husband faced further uncertainty; courts can send a decision back, but they cannot direct a particular outcome.
In Carr v Douglass [2016] NSWSC 854, a father's will directed his super be held on trust for his disabled son.
But his binding nomination had expired two years before his death and nobody reminded him to renew it.
His former wife then caused the trustee to pay the entire fund, over $673,000, to herself.
The Court was powerless to redirect it.
The rule most people miss
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Why these outcomes keep happening
These cases are not rare, and they follow a clear pattern.
What you should do now
Check your BDBN
If it has lapsed or was never made, act immediately.
Review your SMSF deed
The High Court's decision in Hill v Zuda means you can make a non-lapsing BDBN, but only if your trust deed permits it.
Plan trustee succession
Consider who will become your fund's trustee upon your death.
If your co-trustee is also a potential beneficiary, a conflict of interest is built into the structure.
Align your will
A will that assumes super will flow into the estate is worthless without a valid BDBN directing the benefit to your legal personal representative.
Finally, if you are in a blended family, the risk is acute.
Courts have shown that trustees will often favour a surviving spouse, and adult children face an uphill battle to challenge such decisions.
A BDBN is the only mechanism that removes discretion entirely.
The bottom line
Superannuation is not governed by your will.
The courts have made clear that good intentions and longstanding family relationships count for nothing if the paperwork is not in order.
The fix is straightforward: make a binding death benefit nomination, review it regularly, and ensure your fund's trust deed supports it and aligns with your overall estate planning.
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