Superannuation and your estate
Superannuation is often one of the largest assets a person owns, especially for younger Australians who may not yet have entered the property market. But despite its importance, most people don’t fully understand how their super is treated when they pass away.
While it is connected to your estate, what happens to your super is determined by a completely separate process, one controlled by your super fund.
In this article, we break down the key things you need to know about superannuation, beneficiary nominations, tax implications, and why proper estate planning is essential for protecting this important asset.
Superannuation Doesn’t Automatically Follow Your Will
A common misconception is that your Will decides who receives your superannuation. In reality, your super fund’s trustee is the one who determines where your super death benefits go after you pass away.
To guide their decision, the trustee relies on your beneficiary nomination - but not all nominations are created equal.
There are several types of nominations, including:
Binding nominations
Non-binding nominations
Lapsing nominations (expire every three years)
Non-lapsing nominations
Many Australians unknowingly have non-binding, lapsing nominations, meaning they must be reviewed regularly to remain valid. At Vicca Law, we remind clients each year to check their super nomination to ensure it hasn’t expired.
Who Can You Nominate? Understanding Valid Beneficiaries
This is where things get quirky. Under Australian superannuation law, only certain people can be nominated as beneficiaries.
A valid beneficiary must be:
Your spouse
A financial dependent
Your children (including adult children)
Your legal personal representative (LPR) - the executor of your Will
While adult children are valid nominees, their payment may be taxed. By contrast, payments to spouses and financial dependents are generally tax-free.
Many clients are shocked to learn that parents, siblings, and friends cannot be nominated unless they are financially dependent on you.
For example:
A young single person nominating their mother?
- Not a valid binding nomination.
A person with two independent adult children?
- Valid, but tax implications apply.
This is why tailored advice is crucial - each family situation is different, and mistakes can be costly.
Tax Implications for Non-Dependent Beneficiaries
If your super is paid directly to adult children who are not financially dependent on you, they may have to pay tax at their marginal rate. For many families, this comes as a surprise.
Where possible, we explore strategies to help minimise unnecessary tax, including:
Nominating your legal personal representative so super flows into your estate
Considering options within a testamentary trust, such as a Super Death Benefits Trust
Seeking advice from a financial advisor about potential withdrawal and recontribution strategies
These options won’t suit everyone and in some cases, the law gives us limited flexibility but understanding your choices can help protect more of your estate for your beneficiaries.
Why Estate Planning Must Include Superannuation
Superannuation is part of your overall estate picture, but it frequently sits outside of your Will. This is why comprehensive estate planning is so important.
When clients come to us, we include a review of their superannuation nominations as part of our estate planning package. A surprising number of people discover that their nominations are outdated, invalid, or simply not aligned with their intentions.
Your Will covers your assets but your super requires its own strategy. Without the right plan:
Your nomination may lapse without you realising
The trustee may override your wishes
Your beneficiaries may pay avoidable tax
Your estate may lose thousands unnecessarily
You’ve worked hard to build your super. Making thoughtful decisions now can ensure your loved ones receive the full benefit, rather than losing a portion to the tax office.
Plan Ahead and Protect Your Legacy
Superannuation can be one of the most complex parts of estate planning, but it’s also one of the most important. Understanding how your nomination works, who you can nominate, and the tax consequences involved can make a significant difference to your estate and to your family’s financial wellbeing.
If you’re unsure whether your superannuation nomination is valid, up to date, or aligned with your wishes, now is the perfect time to review it.
Vicca Law offers comprehensive estate planning support, including guidance on superannuation death benefit nominations to help you secure the best outcome for your beneficiaries.