Who Inherits Your Superannuation? Understanding Non-Estate Assets in Wills

Superannuation as a Non-Estate Asset

Superannuation is held in trust by a superannuation fund and does not automatically form part of a person’s estate upon their death. Unlike assets such as real estate, shares, or bank accounts, which are distributed according to the terms of a will, superannuation benefits require specific arrangements to be directed to intended beneficiaries. This distinction arises because superannuation is governed by trust law and the regulations of the specific fund, meaning that without appropriate planning, superannuation entitlements may not be allocated as the deceased intended. To ensure that superannuation benefits are distributed in accordance with a person’s wishes, individuals can make binding death benefit nominations, which instruct the fund trustee on how to distribute their superannuation upon their death.

In the absence of a valid binding nomination, the trustee of the superannuation fund has the discretion to decide who receives the death benefit. Typically, the trustee may distribute the benefits to dependents, such as a spouse, children, or a financial dependent, or to the deceased’s legal personal representative (LPR), who will then distribute the funds as part of the estate. However, superannuation death benefits are subject to the rules of the specific fund, which may override general estate planning intentions. This means that even if a person’s will specifies a particular beneficiary, their superannuation benefits may not be distributed in the same manner unless a valid nomination is in place. Proper estate planning, including regular review of superannuation nominations, is essential to ensure that superannuation entitlements are allocated as intended.

The Role of Binding Death Benefit Nominations

A Binding Death Benefit Nomination (BDBN) is a legal directive that allows a superannuation member to specify who should receive their superannuation benefits upon their death. Unlike general estate assets, which are distributed according to a will, superannuation is governed by fund-specific rules, and without a valid BDBN, the trustee of the fund has the discretion to decide how the benefits are allocated. A BDBN ensures that the trustee follows the member’s wishes, preventing any ambiguity or potential disputes over the distribution of the funds. This can provide certainty for the member and their intended beneficiaries, ensuring that their superannuation entitlements are directed appropriately.

To be effective, a BDBN must be valid, current, and made in accordance with the specific requirements of the superannuation fund. Many super funds require BDBNs to be renewed every three years unless they are classified as non-lapsing, in which case they remain in effect indefinitely. If a BDBN lapses or is not in place at the time of death, the trustee gains full discretion over how the benefits are distributed, which may result in allocations that do not align with the deceased’s intended beneficiaries. Given the potential complexities and financial implications of superannuation distributions, it is essential for individuals to regularly review and update their BDBNs to ensure their superannuation benefits are passed on according to their wishes.