Why Your Will Cannot Control Your Super
Many Australians believe that preparing a will means all their assets will automatically pass to the beneficiaries named in it. However, one of your largest assets may sit outside your will entirely: your superannuation.
This is because your super is not normally owned by you personally. It is held for you by the trustee of your super fund under a trust structure. As a result, your super balance—and any life insurance attached to it—does not automatically form part of your estate when you die.
Therefore, simply writing “I leave everything to my spouse” in your will may not be enough to direct your super to your spouse.
Who decides where your super goes?
The answer depends largely on the beneficiary nomination you have lodged with your super fund.
A non-binding nomination tells the trustee whom you would prefer to receive your super. However, it is only a guide. The trustee must consider the nomination but may ultimately pay the benefit differently after reviewing your relationships and financial dependants.
A valid binding death benefit nomination generally requires the trustee to pay your super to the eligible beneficiaries you have nominated. Some binding nominations expire—often after three years—while others are non-lapsing. The rules differ between super funds, so the nomination must be completed, witnessed and maintained in accordance with your fund’s requirements.
Without a valid binding nomination, the trustee may decide who receives the benefit under superannuation law and the fund’s governing rules. That decision may not produce the outcome you expected from reading your will.
You cannot nominate just anyone
Superannuation law restricts the people who can generally receive a death benefit directly from the fund. Eligible recipients commonly include:
- your spouse or de facto partner;
- your children;
- someone financially dependent on you;
- someone with whom you had an interdependency relationship; or
- your legal personal representative, usually the executor or administrator of your estate.
This creates problems where someone wants to leave their super directly to a sibling, parent, friend or charity who is not an eligible superannuation dependant.
In that situation, a common strategy is to nominate the legal personal representative. The super is then paid into the estate and distributed under the terms of the will. This brings the super and the will together—but only because the beneficiary nomination has directed the fund to the estate.
Tax must also be considered
The person who receives your super can affect how much tax is payable. For example, an adult child may be permitted to receive a super death benefit but may not qualify as a tax dependant. This can mean tax is deducted from the taxable component before the benefit reaches them.
A nomination should therefore not be made in isolation. It should be coordinated with your will, testamentary trust arrangements, insurance, pensions and the tax position of each beneficiary.
The important lesson is that a will and a superannuation nomination perform different jobs. A complete estate plan needs both documents to work together.
Check your nominations regularly—particularly after marriage, divorce, the birth of a child or the death of a beneficiary. Your will may be perfectly drafted, but without the right superannuation instructions, a substantial part of your wealth could still end up in the wrong hands.