Key Takeaways

  • Superannuation does not automatically form part of your estate and is not covered by your will unless you direct it there via a valid nomination.
  • Death benefit nominations — binding or non-binding — determine who receives your super when you die and can have significant tax consequences.
  • Lump sum benefits paid to a tax dependant (such as a spouse or minor child) are generally tax-free; benefits to a non-tax dependant (such as an adult financially independent child) may attract tax.
  • Binding nominations must typically be kept current — many lapse after three years unless they are non-lapsing.
  • Reviewing your super death benefit nominations is one of the most important — and most commonly neglected — aspects of estate planning.

Why Superannuation Death Benefits Demand Careful Attention

For many Australian families, superannuation represents the single largest asset in an estate — yet it operates entirely outside the standard rules of succession. When a person dies, their superannuation balance does not automatically pass to their estate. It is governed by the fund's rules, the superannuation legislation, and any death benefit nomination the member has made. Without a valid, current nomination, the fund trustee decides who receives the death benefit — and their decision may not align with the deceased's wishes.

Who Can Receive a Super Death Benefit?

Super funds can only pay death benefits to dependants under superannuation law: a spouse or de facto partner, children of any age, anyone in an interdependency relationship, and anyone financially dependent on the deceased. If none of these apply, the money passes to the legal personal representative for distribution under the will or the rules of intestacy.

While children of any age can receive super death benefits, the tax treatment differs depending on whether they qualify as a "tax dependant" — a distinction with significant financial consequences.

Types of Death Benefit Nominations

Binding Nominations

A binding death benefit nomination (BDBN) is a formal instruction to the fund trustee specifying who receives your super and in what proportions. When valid, the trustee must follow it — no discretion applies. This provides certainty where family relationships are complex or competing claims may arise. Most binding nominations lapse after three years and must be renewed; some funds offer non-lapsing binding nominations that do not expire.

Non-Binding Nominations

A non-binding nomination indicates your preference to the trustee but does not bind them. The trustee will generally take it into account but retains full discretion. Non-binding nominations do not lapse, but offer less certainty than a current binding nomination.

Reversionary Pensions

If you are receiving a pension from your super fund at death, a reversionary pension nomination means the pension continues to a nominated dependant — typically a spouse — rather than being converted to a lump sum. This can have tax advantages and provides ongoing income rather than a one-time payment. Reversionary pensions must be set up in advance.

Tax on Super Death Benefits: The Critical Distinction

The key tax distinction is between "tax dependants" and "non-tax dependants." Under the Income Tax Assessment Act, a tax dependant includes a spouse or de facto partner, a former spouse, a minor child (under 18), a person in an interdependency relationship, and anyone genuinely financially dependent on the deceased at the time of death. Lump sum death benefits paid to a tax dependant are received tax-free.

An adult child who was not financially dependent on the deceased is a non-tax dependant. Death benefits paid to a non-tax dependant may be taxed on the taxable component of the super balance — the taxed element at 15% plus the Medicare levy. This can result in a significant bill for adult children receiving large balances and is a central reason why death benefit nominations require careful planning with a professional adviser.

Directing Benefits to Your Estate and Keeping Nominations Current

Rather than nominating individuals directly, some members nominate their legal personal representative, directing the benefit into their estate for distribution under the will. This does not change the tax treatment — a non-tax dependant receiving super proceeds via the estate is still taxed on the taxable component. Directing to the estate also exposes super to potential estate challenges and delays in probate.

Super members should review death benefit nominations whenever a major life event occurs — marriage, divorce, the birth of a child, or the death of a nominated beneficiary. Binding nominations that lapse are a particularly common problem. Setting a calendar reminder to renew every three years, or switching to a non-lapsing binding nomination if your fund offers one, is a straightforward safeguard.