Your super balance will be a significant asset when you die and it should therefore be considered very carefully in your estate planning. This is particularly important given that it will not automatically be covered under your will.
When you die, your super balance must be paid to your ‘dependents’ and / or your estate. If it is paid to your estate, it will then be dealt with in accordance with your will.
Who is a super dependent?
Under super law, your dependents are:
- your spouse (this includes de facto and same sex spouses, but not a former spouse);
- your children and your spouse’s children (regardless of their age – age only becomes relevant when determining how much tax to pay on the benefit);
- anyone who is genuinely dependent on you in the ordinary sense (for example someone who relies on you financially in order to meet their usual costs of living); and
- anyone with whom you have an ‘interdependency relationship’.
How is a death benefit paid out?
Super benefits can be paid either as lump sums, pensions or some combination of the two. Legislated restrictions on payment of death benefits apply, including:
- Generally, adult children cannot receive your death benefit as a pension (it must be paid as a lump sum);
- Minor children can receive your death benefit as a pension, but generally only for a limited time (until age 25);
- Providing they are paid to someone who is eligible to receive them (such as a spouse) your death benefit can include any number of pensions. However, each beneficiary can only receive up to two lump sums.
Who decides where my super goes?
A super fund is a trust and, like any other trust, is controlled by its trustee. The trustee must act in accordance with the trust deed.
When you die, the default position is that the trustee has absolute discretion (subject to the law) as to who receives your death benefit.
Importantly, your super is not controlled by your will unless the trustee pays it to your estate.
However, there are some steps you can take to either guide or instruct the trustee on how your death benefit is to be dealt with, should you wish to do so.
You can put in place one or a combination of the following:
1. Written notice of wishes
The trustee is not obliged to comply with your notice, rather it simply indicates your preference or wishes (in fact, they are often called an ‘expression of wishes’ or a ‘non-binding death benefit nomination’) and may be a useful guide to assist the trustee in its decision.
2. Reversionary Pensioner
You can choose to have your pension paid to a nominated beneficiary after your death. There are rules around who can receive a reversionary pension. This may work well for death benefits paid to a spouse or minor children, but cannot be paid to your legal personal representative or adult children.
3. Binding Death Benefit Nomination (BDBN)
A BDBN is a legal document which tells your trustee to which beneficiaries they should pay your death benefit. A valid BDBN is binding on your trustee. By default, a BDBN is valid only for three years. An exception to this applies to SMSFs. With SMSFs, a BDBN can apply indefinitely if the trust deed allows for it.
There is no legal requirement to do any of these things – it is entirely legitimate to do nothing and simply leave the trustee to exercise its discretion at the time.