What happens to my Super when I go? Superannuation and Estate Planning

Superannuation is an area that is often forgotten or misunderstood in the estate planning process.

A super fund member cannot just sign a Will and assume that their super benefits will automatically be paid in the way set out in their Will. The super fund trustees are not bound by the deceased member’s will and may pay the benefits to either the deceased member’s estate or to appropriate dependants as they see fit.

In most cases problems will not arise. But problems can arise, for example, in same sex relationships, with “hidden” or multiple relationships, with “warring” children, and so on.

Moral and legal factors which may influence a super trustee’s discretion to pay a benefit to a person include:

  • the relationship between that person and the deceased member;
  • the person’s age and ability to look after themselves financially;
  • the extent of the person’s dependency;
  • the person’s financial circumstances;
  • the history of the person’s relationship with the deceased member; and
  • the strength of any other claims made by other people.

There is a further general restriction, and this is the trustees can only pay the benefits to certain persons, being a person who is a “super dependant” of the deceased member. This means a person who is:

  • a spouse,
  • a child (of any age); or
  • a person who was financially dependent on the member at the time of death; or
  • the estate of the deceased member.

Binding death benefit nominations

Clients can override the trustees’ discretion by signing a ‘binding death benefit nomination’ (BDBN).

A BDBN directs the trustee to pay the death benefits to a particular person. It allows the client to control the trustees’ discretion as to who gets the benefits on the client’s death. The trustee must pay the death benefit in accordance with the BDBN.

A BDBN may be used in conjunction with a so called “super Will” to coordinate the payment of the deceased member’s super benefits with their other estate planning strategies.

A BDBN usually cannot be contested by an aggrieved person unless for some reason it is not valid. Possible reasons for a BDBN not being valid include:

  • the fund’s trust deed does not allow BDBNs;
  • the BDBN was not signed properly;
  • the client was not of sound mind when the BDBN was executed;
  • the BDBN is the result of a fraud or emotional or physical duress; and
  • the BDBN is more than three years old.

Pensions and the estate

Pensions, where you are paying yourself an income from your superannuation, have the added complication in that they offer another estate planning option, the Reversionary beneficiary.  This nomination sees the pension transfer to an allowed person, and continues to pay its benefit to that person as long as there is a balance.  This may be a great option, however without careful consideration it may create other issues for the recipient.  Issues arise where the recipient is on government benefits, or even when the balance is too great, which can lead to confusion or issues external to the fund itself. 

Problems for Self Managed Superannuation Funds (SMSF)

The ongoing control of a SMSF will be held by the remaining individual trustees or the shareholders of a corporate trustee.

One common problem arises where only one of several children is a member and trustee of a SMSF. That that child will control the SMSF on the death of both parents and may exercise his or her power as a trustee to the detriment of the other children.  There have been numerous court cases (Katz v Katz is one of the more well known), that have reinforced the position that the trustee has control of the SMSF, and if there is no clear directive they may take the decision on who to pay out according to the trust deed.  In the case mentioned above, the trustee paid themselves out (legally) and exclude the other children and there was nothing the court could do about it.  In short, we need to plan for this eventuality.  We may assume our children will act as we wish, however some times we need to make sure the structures are in place to make this happen and remove any temptation.

So.......

Careful consideration must be used in who to nominate, and also how to get the funds to that person.  Too many times we see young people nominate their parents to receive benefits, however this is not allowed to be paid out, so the funds would go to the estate.  Now we have the issue that the member doesn't have a will and things can get very complicated from there.  Similarly, you may wish to leave funds to your adult children, however there are tax issues and what if they are not in a position that it is best for them to receive the money directly?  The best course of action is to sit down with your adviser, and solicitor, and work through the issues of who you want to leave your funds to, and how they are best to receive them.  A little bit of time spent planning can save a lot of time in confusion, and potentially save your family time and money.

Either way, the situation calls for intelligent and informed estate planning. Please do not hesitate to contact us if you or someone you know needs assistance in managing the connection between their super and their estate planning.


The information on this posting contains general information and does not take into account your personal objectives, financial situation or needs. It is important that you consider your own situation before acting on any information contained in this blog post. 
We recommend that you consult a licensed or authorised financial adviser, such as ourselves, if you require financial advice that takes into account your personal circumstances.