Who gets your super? Everything you need to know (and update in your super) for your estate planning

Did you know that your super isn’t automatically part of your estate when you die?

It can come as a surprise to many Australians who have done the work on creating a legal will to document their last wishes that the rules work differently with your superannuation. It’s not just that you need to log your chosen beneficiaries with your super fund, there are also strict rules around who you can nominate.

In fact, if you haven’t notified your super fund about your beneficiaries or use a non-binding nomination, there are rules around how they identify and select your beneficiaries. It might not match your wishes.

All joking aside about celebrities who leave money to their pets, that is simply not an option with your super. You might not even be able to leave some of your super to an old friend either, unless they meet specific conditions.

Adding to some of the complexity, some of Australia’s biggest super funds, like Hesta and Cbus Super, are currently changing the options they offer for death beneficiary nominations. This isn’t necessarily a bad thing – but it is important that you understand what the options are and what you need to do.

Ready to fix the “super-sized” gap in your estate planning? Read on.

Who can you leave your super to?

When you write a will, you can leave your money to anyone you want to. Your family, friends, neighbours, charities. Your choice.

When it comes to superannuation, there are laws around who can inherit your super (be a beneficiary) and then separate tax laws about how the money is paid and taxed.

You can check the Australian Taxation Office for the latest on eligible beneficiaries and applicable tax laws but a brief summary follows.

Your super can go to:

• Your current spouse or partner
• Your children (of any age)
• Someone in an interdependency relationship with you when you die (this is where you have a close personal relationship, live together, provide each other with domestic support and personal care and one or both of you provide financial support)
• Anyone who is financially dependent on you when you die
• Your legal personal representative (your estate – this means that the super is paid as a lump sum to the estate and is then distributed according to your legal will).

These are considered dependants from a superannuation perspective and therefore eligible beneficiaries.

Then tax defines dependants differently which has tax implications.

Your dependants under current tax laws are:

• Your spouse or current partner
• A former or de facto spouse
• Your child aged under 18 years
• In an interdependency relationship with you
• Anyone else financially dependent on you

An adult child may also be a dependant for tax purposes if they were financially dependent on you or were in an interdependency relationship with you at the time of your death.

This means your adult children who are financially independent are not considered dependants nor is your legal personal representative under tax law.

These definitions matter for different reasons. Superannuation law determines who can receive a death benefit and whether it can be paid as a lump sum or income stream, while tax law determines how that benefit is taxed. 

A beneficiary who is eligible under superannuation law may be able to receive the benefit as an income stream, subject to additional restrictions for children. Other beneficiaries must receive the benefit as a lump sum.

A lump-sum death benefit paid to a tax dependant is generally tax-free. For a beneficiary who is not a dependant for tax purposes, the tax-free component remains tax-free, while the taxable component may be taxed. The maximum tax rate is generally 15% on the taxed element and 30% on the untaxed element, with the Medicare levy potentially applying where the benefit is paid directly to an individual. Income streams are subject to separate tax rules.

The ways to nominate a beneficiary

Traditionally, you have a few options within super.

1) Binding (lapsing) nominations

You set a formal written directive to your super fund which needs to be witnessed by two adults who are not beneficiaries. Generally, your super fund should offer a specific form for you to complete. Any beneficiaries you nominate must be eligible based on superannuation rules. Once you submit it to the Trustee of your superannuation fund, you should receive confirmation. It’s also valuable to keep a copy of this and your nomination form in your own records. These nominations typically lapse after three years meaning you’ll need to complete a new form before expiry to update your beneficiaries.

2) Binding (non-lapsing) nominations

As with the above, generally you need to complete a formal written directive for your super fund and have it witnessed by two adults who are not your beneficiaries. In this case, the form doesn’t expire (lapse) so will remain valid unless you submit a new form to change it. However, some funds offer online nominations and others may have different requirements. 

3) Non-binding

Many superannuation funds offer non-binding death nominations. This means you can nominate beneficiaries in your account, but it is not legally binding for the Trustee of your superannuation fund. After your death, the Trustee will consider your nomination but is not bound to follow it.

4) Reversionary pension

Depending on the type of pension and the fund's rules, the reversionary beneficiary may be able to continue the income stream or commute some or all of the benefit to a lump sum.

5) No nomination

This is the default option for many superannuation funds and means that the Trustee of your super fund will determine who receives your benefit after your death, following superannuation laws.

It’s worth noting that these options are not necessarily universal to all super funds, with each having their own processes regarding digital versus paper copies of binding nominations too. It’s something you need to check with your super fund.

Changes to check

Several Australian super funds have made adjustments to their death benefit nominations this year, including Cbus, Aware Super, AustralianSuper and HESTA – though the extent of the changes varies.

If you are with one of these funds, you should have received notification of any changes, but regardless, you should take the time to check in with your super fund on what their options are and if they’ve made any changes.

For example, some funds have stopped non-binding nominations and now require members to provide formal binding nominations, while others have phased out lapsing binding nominations. Some funds have also started to establish a digital process, though generally paper signatures for witnesses are still required.

If your fund is changing, take the time to check whether your existing nomination remains valid, and if it doesn’t, aim to complete any required forms as soon as possible (or before any fund deadlines) to ensure you have valid beneficiaries listed against your super – otherwise, the Trustee decides for you.

Regular review

Just like the will for your broader estate, it’s valuable to update your superannuation beneficiaries regularly too.

A basic rule of thumb is to check and update if needed every time you experience a major life event or other life circumstances change, such as:

• Marriage or divorce
• Birth or adoption of children
• If a chosen beneficiary dies before you
• A new dependant relationship

Your super, your way

Super is often a sizable part of our assets, so don’t forget it when you plan for your broader estate.

Research from Super Consumers Australia suggests that at least 15.5 million Australians may not have a binding death benefit nomination – if you think this could be you, check your super fund now and take the time to plan out your beneficiaries using the relevant paperwork for your fund.

For more information on setting a binding death benefit nomination, talk to your nominated super fund and visit the Australian Taxation Office for the relevant rules.