Superannuation is often one of the largest assets a person has, yet it is also one of the least understood parts of estate planning. Many people assume their super will be dealt with under their Will. In practice, that is often not the case.
Superannuation sits in a separate legal framework. Whether it ends up in an estate, goes directly to a beneficiary, or becomes the subject of a dispute depends on decisions made well before death – and on how those decisions interact with the rules of the relevant super fund.
This article explains how superannuation death benefits are dealt with in New South Wales, where things commonly go wrong, and what needs to be considered when planning or administering an estate.
Why superannuation is different
Superannuation is held in trust by a superannuation fund. On death, the fund trustee decides how the death benefit is paid, subject to the governing rules of the fund and superannuation law.
That alone is enough to create confusion. Executors and beneficiaries are often surprised to learn that:
super does not automatically form part of the estate, and
the Will may have little or no control over it.
Understanding this distinction early avoids false assumptions and misplaced expectations.
Who can receive superannuation death benefits
Superannuation law restricts who can receive death benefits directly from a fund. Broadly, death benefits can be paid to:
a spouse or de facto partner,
a child (including adult children),
a person financially dependent on the deceased, or
the deceased’s legal personal representative (the estate).
If paid to the legal personal representative, the superannuation then becomes part of the estate and is dealt with under the Will.
Who qualifies as a dependant, and whether someone is financially dependent, is not always straightforward. This is one of the areas where disputes frequently arise.
Binding and non-binding nominations
Most super funds allow members to make death benefit nominations. These usually fall into two categories:
Binding nominations
A valid binding nomination directs the trustee to pay the death benefit to specified beneficiaries in set proportions. If the nomination is valid and current, the trustee has little discretion.
Non-binding nominations
A non-binding nomination acts as a guide only. The trustee considers it, but ultimately decides who receives the benefit and in what proportions.
Whether a nomination is binding depends on:
the rules of the fund,
whether the nominated beneficiaries are eligible dependants,
whether the nomination has expired, and
whether it was executed correctly.
In practice, nominations can fail because they are outdated or invalid.
Superannuation paid to the estate
Some people deliberately nominate their estate as the recipient of their superannuation. This can make sense where:
the Will includes testamentary trust structures,
equalisation between beneficiaries is required,
control over distribution timing matters, or
estate debts or liabilities need to be managed centrally.
However, directing super into the estate also exposes it to:
This is not necessarily a reason to avoid it, but it is a reason to make the decision deliberately.
Superannuation and family provision claims
Superannuation is frequently relevant in family provision claims, even when it does not form part of the estate.
Courts look at the totality of the deceased’s assets and resources, including superannuation death benefits received by beneficiaries, when assessing whether adequate provision has been made.
This means that paying super outside the estate does not put it beyond scrutiny. It may still influence the outcome of a claim, particularly where one beneficiary receives a substantial death benefit and others receive little under the Will.
SMSFs – a different landscape
Self-managed superannuation funds add another layer of complexity.
With SMSFs, control of the fund often becomes the central issue. Who controls the trustee company after death can often determine who benefits from the superannuation.
Common problems include:
outdated trustee structures,
inconsistent binding death benefit nominations,
conflicts between the SMSF deed and the Will, and
disputes between surviving trustees and intended beneficiaries.
SMSF succession planning should be coordinated carefully with estate planning. When it isn’t, litigation risk increases significantly.
Tax consequences of superannuation death benefits
Tax is often overlooked until it is too late.
The tax treatment of superannuation death benefits depends on:
who receives the benefit,
whether they are a tax dependant, and
whether the benefit includes taxable and tax-free components.
Adult children, in particular, are often surprised to learn that superannuation death benefits paid to them may be taxed. This can materially affect the net outcome and should be factored into estate planning decisions.
Common issues seen in practice
From a practitioner’s perspective, the same problems recur:
nominations that expired years earlier,
nominations to ineligible beneficiaries,
assumptions that the Will controls super,
failure to coordinate super with testamentary trust planning, and
disputes between trustees and family members after death.
None of these issues arise from obscure legal technicalities. They arise from superannuation being treated as an afterthought.
Administering estates with superannuation
Executors often find superannuation to be the slowest part of estate administration. Funds have their own procedures, timeframes and evidentiary requirements.
Executors may need to:
provide probate or letters of administration,
supply evidence of dependency,
respond to competing claims, and
manage beneficiary expectations while decisions are pending.
Clear advice early on helps executors understand what they can – and cannot – control.
How superannuation fits into a complete estate plan
Superannuation decisions should be made in conjunction with:
Isolating super from the broader estate plan is one of the most common planning mistakes.
For many clients, superannuation is not just another asset. It is the asset that determines whether an estate plan actually works.
Reviewing and updating nominations
Superannuation nominations should be reviewed whenever there is:
a change in relationship status,
a significant change in assets,
a new Will or trust structure, or
a change in fund or trustee arrangements.
An out-of-date nomination can undo otherwise careful planning, so it’s important to check the type and duration of any nominations that have been made.
Key takeaway
Superannuation death benefits operate under a different set of rules to the rest of an estate. Whether they are paid directly to beneficiaries or into an estate can materially affect outcomes, tax, and dispute risk.
Understanding how superannuation interacts with Wills, trusts and family provision law is essential for anyone planning an estate or administering one.
Related Guides — Wills & Estates Law in NSW
Superannuation and death benefits are an important part of estate planning and administration in New South Wales. The following guides explore key aspects of wills, probate, administration, and planning that can help you understand how super and other assets are dealt with when someone dies.
Speak to a specialist estate lawyer
Our expert wills and estates solicitors can provide you with advice on your superannuation and death benefit nominations, and how they will interact with your broader estate plan. To speak to an estate planning specialist, give us a call or submit an enquiry now.
