Key takeaways
- A member's super does not automatically form part of their will; the fund pays the death benefit.
- It must be paid to dependants or the estate, as soon as practicable after death.
- A valid binding death benefit nomination directs who receives it; without one, the trustee decides.
- Tax on a death benefit depends on whether the recipient is a tax dependant.
Superannuation is one of the largest assets most people leave behind, and it is treated differently from the rest of an estate. When a member dies, their super is paid as a death benefit under the fund's rules, not automatically under their will. Planning ahead spares families stress at a difficult time.
Who can receive a death benefit
A death benefit can be paid to the member's dependants, or to their legal personal representative (the estate), to then be distributed under the will. For super purposes, dependants include a spouse, children, and people in an interdependency or financial dependency relationship with the member.
Directing where it goes
How the benefit is directed depends on what the member put in place:
- Binding death benefit nomination (BDBN). A valid binding nomination directs the trustee to pay a specified person or the estate. Provided it is valid, the trustee must follow it.
- Reversionary pension. A pension can be set up to automatically continue to a nominated beneficiary, such as a spouse.
- Trustee discretion. Without a valid binding nomination, the surviving trustee decides who receives the benefit, within the rules. In a couple's fund, that can place a lot of power with the survivor.
How death benefits are taxed
Tax depends on the recipient. A benefit paid to a tax dependant, such as a spouse or a minor child, is generally tax-free. A benefit paid to a non-tax-dependant, such as an independent adult child, can include a taxable component. The makeup of the member's balance also affects the result, so the tax outcome is worth modelling in advance.
Plan it, do not leave it to chance
Because super sits outside the will and the trustee has real power, a valid, current nomination is one of the most important things a member can put in place. Estate planning for super, including who controls the fund after a death, is worth getting right with proper advice. See also adding or removing members.
Frequently asked questions
- Does my super go to whoever is in my will?
- Not automatically. Super is paid as a death benefit under the fund's rules, not under your will. It can be directed to your estate, but only if you nominate that, or the trustee decides to pay it there.
- What is a binding death benefit nomination?
- A valid binding nomination directs the trustee to pay your death benefit to specified dependants or to your estate. Provided it is valid and current, the trustee must follow it, removing discretion from the surviving trustee.
- Is a super death benefit taxed?
- It depends on the recipient. A benefit paid to a tax dependant such as a spouse or minor child is generally tax-free, while a benefit to a non-dependant, such as an independent adult child, can include a taxable component.
