What happens to your super when you die?

Outside of owning any property, superannuation is probably the biggest single asset most of us have, so it’s important to know what will happen to your super when you die.

The average Australian has around $147,000 in superannuation, according to 2022 figures. But how many people are aware of the importance of nominating a beneficiary to make sure your super goes where you want it to go when you’re gone?

It’s been compulsory for employers to contribute to our super for the past 30 years, and while we spend a lifetime meticulously deciding on investments and super products, what happens to the distribution of these funds when you die can be derailed if the correct paperwork hasn’t been completed.

For example, a Will is a legal document that sets out who will get your assets and possessions when you die. But it’s important to note that your superannuation death benefits don’t automatically form part of your estate and aren’t governed by the directives set out in a Will unless you take some specific steps.

What could happen to your super when you die?

What happens to your super when you die depends on what arrangements, if any, you’ve made. In some cases any superannuation funds may be paid out to a deceased person’s dependents outside of their estate.

There’ve been instances where the deceased has directed their super go to their friends, grandchildren or siblings, only to have it ruled as an invalid nomination due to the rules governing that particular superannuation fund.

According to the Superannuation Industry (Supervision) Act (“SIS Act”), death benefits are restricted to a member’s dependents or legal personal representative. It’s important to know who is considered a “dependent” to understand who can receive the deceased’s superannuation.

Under Section 10 of the SIS Act a dependent may be any of the following:

1. Spouse of the member: A spouse in a legal or de facto relationship. It’s important to note it must be the member’s current spouse.
2. Child: A child that meets the definition of the Family Law Act. This can include a biological child, adopted child, a step-child, ex-nuptial child or the children of the person’s spouse.
3. Interdependent relationship: To be considered to have an interdependency relationship, there is no simple rule. The relationship will need to be considered on a case-by-case basis. At a minimum, the basic test outlined under the SIS Act says for two people to have an interdependent relationship they must:
   • have a close personal relationship
   • live together
   • one or each of them provides the other with financial support, and
   • one or each of them provides the other with domestic support and personal care.

   If there’s uncertainty as to whether an interdependency relationship exists, a private ruling can be obtained from the Australian Tax Office (ATO).

4. Financial dependent: A relationship exists if the beneficiary was financially dependent on the deceased member at the time of death. There’s no formal definition of financial dependency, and again it would be determined on an individual basis, with appropriate evidence of the financial dependency to be provided.

What happens to your super if there are no dependents?

You may wish to pay your superannuation death benefits to one or more beneficiaries who are not a dependent. In this case, you can make a nomination to your legal personal representative. This is the executor of your Will.

This allows your superannuation death benefits to form part of your estate and then be distributed according to your Will.

You should be aware that different tax treatments may apply between dependent and non-dependent beneficiaries, so you might want to get some appropriate estate planning advice.

How to make a nomination on who gets your super when you die

If you want to say who gets your super when you die then a valid nomination needs to be in place with your super fund to reflect your wishes.

Different super funds offer different types of nominations, from binding to non-binding and lapsing to non-lapsing, so check to see what’s available with your super fund.

Nominations should be reviewed regularly to make sure they are still valid and reflect your wishes.

If you would like your funds distributed to non-dependents (or an organisation, charity, etc.) you can do this by filling out the relevant form and nominate your legal personal representative/executor. Again, this would allow the superannuation death benefits to be paid into the estate and dealt with as part of your Will.

The different types of nominations explained

The two main types of nomination you can make with your super are a binding nomination and a non-binding nomination.

Binding nomination

A binding nomination provides certainty that the super trustee will follow the instructions of the nomination. Binding nominations can be put in place to make sure these align with a member’s wishes, but many require updating every three years.

Non-binding nomination

A non-binding nomination is an expression of a member’s wishes that the trustee will consider when exercising its discretion as to how to distribute any benefits. The trustee will make a decision based on the superannuation rules, sole purpose test and the facts present.

Whatever nomination you are considering for your super when you die, you should consider getting some independent financial advice.

Any advice in this article is general in nature and has been issued by LGSS Pty Limited (ABN 68 078 003 497) (AFSL 383558), as Trustee for Local Government Super (ABN 28 901 371 321) (‘Active Super’). This article does not take into account your personal objectives, financial situation or needs. Before acting on it, you should consider the appropriateness of it having regard to these matters. If you would like advice that takes into account your personal circumstances, please contact a financial adviser.

Cover image source: Antonio Guillem/Shutterstock.com