You may have seen recent news reports about “millions” of Australians having no say in who inherits their superannuation (super). It certainly caught a lot of attention – and for good reason.
As OFRM’s Wills & Estates Lawyers, we regularly see confusion around what happens to super when someone dies. Whether we’re helping clients prepare their Wills, plan their estates or administer estates after a death, super is often misunderstood and sometimes overlooked altogether.
Where the confusion often lies
Some of the most common misunderstandings we see include people:
- assuming their super forms part of their estate and will be distributed under their Will
- not being aware of how many super funds they have, or where their super is held
- not understanding the difference between nominating a beneficiary and making a Binding Death Benefit Nomination (BDBN)
- not realising their super fund may include a defined benefit component
If super isn’t properly considered as part of your estate planning, your wishes may not be carried out and in some cases, the outcome for loved ones may be very different from what you intended.
How is super dealt with when you die?
Super is not automatically dealt with under your Will.
Instead, your super benefits are held in a trust, managed by your super fund. The fund’s trustee can only distribute your super in accordance with super law, regulations and the fund’s trust deed.
In practice, this means there are two ways your super can be paid after your death:
1. In accordance with a valid Binding Death Benefit Nomination (BDBN), or
2. At the trustee’s discretion, taking into account any non-binding beneficiary nomination you have made
While this may sound like a small distinction, the difference is significant.
What’s the difference between a beneficiary nomination and a Binding Death Benefit Nomination?
When you first joined a super fund, you were likely asked to nominate a “beneficiary”. This type of nomination is usually non-binding. It acts as an indication of your wishes only – the trustee is not legally required to follow it.
In those circumstances, the trustee may decide to pay your super to someone else they consider to be a dependent under superannuation law.
A Binding Death Benefit Nomination (BDBN), on the other hand, is exactly that – binding. If the nomination is valid at the time of your death, the trustee is legally required to pay your super to the person or people you have nominated.
What makes a Binding Death Benefit Nomination valid?
A binding nomination must meet strict requirements. These can vary between funds, but commonly include:
• being renewed every three years (unless the fund offers non-lapsing nominations)
• being correctly completed, signed and witnessed
• being properly lodged with the super fund
If these requirements are not met, the nomination may be invalid and the trustee will regain discretion over how your super is distributed.
Why this matters
The key takeaway is this, unless you have a valid BDBN in place at the time of your death, your super fund – not your Will – may decide who receives your super.
That decision may not align with your intentions.
Getting it right as part of your estate planning
To avoid unintended outcomes, superannuation should always be considered as part of your broader estate planning.
Book online, call us or get in touch to start the conversation
Our Wills & Estates team in Bendigo can guide you through how your super works, whether a BDBN is appropriate for your circumstances and how to ensure it is completed and maintained correctly alongside your Will and estate plan.
If you would like tailored advice our team is here to help.
