What Happens to Your Superannuation When You Die?

It would be comforting to think that the money you have accrued in your superannuation fund over many years of hard work would simply become part of your estate and be distributed between your beneficiaries when you die, but this is simply not the case.

Technically your super is held in a trust, which means it is subject to superannuation laws, and although it may be news to some people that super isn’t automatically rolled up into your estate, it does not mean that it cannot or will not be passed on to your loved ones, however, there are some steps you will need to take to ensure your wishes are met. It is always best to speak to an experienced wills and estates lawyer regarding estate planning and superannuation laws. 

Who can I leave my superannuation to?

You can choose to leave your superannuation to the same types of people whom you would ordinarily leave your estate to, such as your spouse, (including a same-sex partner or de-facto partner), your child/ren, anyone who might be financially dependent on you or another person with whom you have an existing and close relationship with.

You may also leave it to your Legal Personal Representative (LPR), which leads us to the next step.

How can I ensure they receive it?

Ultimately, your superannuation will find its way into the hands of the ‘right’ person when you die. The right person, however, is based on who the superannuation fund’s trustee deems to be the correct beneficiary and this usually means your spouse, child/ren or anyone who was financially dependent on you at the time of your death.

If you have already provided adequately for one of the aforementioned people and would like to see the funds in your superannuation donated to charity or be distributed to a sibling or friend, for example, you must create a binding death benefit nomination instructing that you are leaving the superannuation to your LPR and then provide for this nomination in your Will.

There are two types of binding death benefit nominations – lapsing and non-lapsing. A lapsing nomination will expire after three years, whereas a non-lapsing nomination will remain in place until a new nomination is made. It is useful to have a binding death benefit nomination in place even if you would like your super to go to your spouse or child/ren as it outlines your true wishes for your estate in case someone other than the nominee makes a claim on your superannuation.

Why can’t I just stipulate who I want my super to go to in my Will?

Creating a binding death benefit nomination in favour of your Legal Personal Representative and not dealing with it in your Will deems the nomination redundant. Accordingly, naming a beneficiary of your superannuation in your Will but not creating an appropriate binding death benefit nomination makes it ineffective.

How can I minimise the tax for my beneficiaries?

How you distribute the funds is up to you, however, if you want your beneficiary to receive the most amount of money possible you should do it in a way that minimises the tax payable on the amount at your death.

The main thing to consider with regard to tax on superannuation and leaving the funds to your children is whether or not they are dependents. If your child is considered a dependent, they will not incur tax, however, a non-dependent will.

A child under the age of 18 is automatically considered a dependent as is a child who has a permanent intellectual, psychiatric or physical disability. Children aged 18 to 25 who are genuinely financially dependent on you will also be exempt from tax.

There is no one-size-fits-all solution to minimising tax, and you should speak to a tax lawyer or an estate lawyer about your personal circumstances to work out how you can best provide for your loved ones in your absence. You should also speak to an estate lawyer if you would like to set up a binding death benefit nomination for your superannuation.

Cairns Wills and Estates Lawyers are experts in estate planning. Get in touch today for an obligation-free consultation.