What happens to your superannuation when you die


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Your super could be one of your most valuable assets - but what you may not realise is that it might not form part of your estate when you die.

Instead, the trustee of your super fund could end up deciding how your death benefit is distributed, which is why it's important you take steps now to ensure the right people receive your super when the time comes.

How your will relates to your super

what happens to your super when you die

Many assets, including your personal possessions, property, bank accounts and investments, become part of your estate when you die and are automatically governed by your Will (or the laws of intestacy if you die without having made a Will).

Your super, however, is not.

This means the balance of your super fund - including any life insurance benefit - may not pass to the beneficiaries set out in your Will, unless you nominate your legal personal representative (such as your executor) to receive your super death benefit.

Alternatively, you can nominate who will receive your super death benefit directly with your super fund. Many funds allow members to make death benefit nominations which, subject to certain conditions, must be followed by the super fund trustee.

By nominating a dependant, your death benefit will be paid directly to them. You can choose to have one dependant receive 100%, or multiple dependants receive a specified percentage each.

Your dependants can include your spouse, children, anyone financially dependent upon you at the time of your death, or anyone in an interdependency relationship with you at the time of your death.

Types of death benefit nominations

Super fund trustees generally allow members who are yet to retire to make one of two types of death benefit nominations - 'non-lapsing' or 'binding' nominations.

Both types allow you to nominate which of your dependants or your legal personal representative should receive your death benefit when you pass away. However, there are some differences between the two options.

Non-lapsing nominations don't expire, so as long as your nomination is properly made and valid at the time of death, it will be legally binding on the trustee. However, it is important to regularly review your nomination to ensure it continues to reflect your wishes if your circumstances change.

Binding death benefit nominations are different from non-lapsing death benefit nominations, as they are only valid for a maximum of three years. This means you will need to re-confirm your nomination at least every three years in order for it to remain valid and binding on the trustee.

If you nominate someone to receive your death benefit, but at the time of your death they are no longer a dependant (for example, if you nominate your spouse but subsequently divorce), your nomination will be deemed invalid and the super fund's default rules will apply.

This could involve the trustee paying your death benefit to your legal personal representative for inclusion in your estate or the trustee exercising their discretion on how your death benefit should be paid.

Alternatively, if you nominate multiple beneficiaries and one of those beneficiaries is found not to be a dependant at the time of death, the trustee may deem that only that part of the nomination is invalid. In this case, the trustee would still pay your death benefit to your other nominated beneficiaries, but would then apply the fund's default rules to the part of the death benefit deemed invalid.

Important things to remember

By nominating a beneficiary for your super, you can have peace of mind and certainty that your super will be paid to the people you choose, but it will also enable quick payment to your beneficiaries.

If you have nominated dependants, your death benefit will be paid directly to your chosen beneficiaries rather than your estate. This reduces the risk of the benefit being exposed to claims by creditors or anyone who may wish to contest your Will.

For more information on the requirements for making death benefit nominations and who you can nominate as a beneficiary, we suggest talking to a financial adviser.

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Craig is the Head of Technical Services at Colonial First State and has more than 23 years of experience in the financial services industry. He is a sought-after presenter at industry conferences and professional development events and is actively involved in providing ongoing specialist adviser education. Craig holds a Masters of Taxation (Financial Planning) and is a Fellow Member of the SMSF Association.