Most people assume their Will sets out everything they leave behind, including their superannuation. Attwood Marshall Lawyers Wills & Estates Senior Associate, Xara Coassin, explains how a binding death benefit nomination can ensure your superannuation passes to your intended beneficiaries, and how even a nomination that looks valid on its face can fail if it hasn’t been checked against your fund’s trust deed.
Superannuation sits outside your estate
Superannuation can be one of the largest assets a person holds outside the family home, yet it sits completely outside the rules that govern the rest of an estate.
Many people assume that whatever they leave their loved ones in their Will automatically covers their superannuation too. But it doesn’t.
Superannuation is held in trust by the fund on a member’s behalf, making it a “non-estate asset.” Unless a member takes specific steps to direct otherwise, the trustee of the super fund decides who receives the death benefit. And that trustee is restricted to paying it to a spouse, a child, a financial dependant, or the deceased’s legal personal representative.
If someone wants their superannuation to go to a person outside that list, such as a sibling, a friend, or a charity, the best way to achieve this is to direct the benefit to their legal personal representative so it can be dealt with under the Will.
What a binding death benefit nomination actually does
A binding death benefit nomination instructs the trustee who should receive a member’s super and, if completed correctly, removes the trustee’s discretion entirely. It works much like a Will, but specifically for superannuation.
Each superfund has its own requirements, however, generally, to be valid, a nomination needs to be signed in front of two witnesses aged over 18, name only eligible beneficiaries, and be renewed every three years (although this can be different). Most binding nominations lapse automatically if they aren’t updated. A non-lapsing nomination avoids this three-year cycle, but that doesn’t mean it’s immune from challenge, as explained further below.
What happens when there is no valid nomination in place
A growing number of disputes before the Australian Financial Complaints Authority (AFCA) shows how much can go wrong when a binding death benefit nomination is missing, has lapsed, or hasn’t been checked against the fine print of a super fund’s trust deed.
Without a valid, current nomination, the trustee retains full discretion over who receives the death benefit. The trustee will weigh up financial dependency, any wishes the deceased expressed, and competing claims from family members. But the outcome isn’t guaranteed to reflect what the deceased wanted.
If someone disputes the trustee’s decision, the matter goes first to AFCA. A recent two-part analysis in the Law Society Journal of NSW examined a string of AFCA decisions involving death benefit disputes, revealing the authority’s unpredictability.
AFCA reviews these cases through a less formal fact-finding process than a court, weighing dependency, member wishes, and competing claims case by case rather than applying a fixed formula.
Death benefits frequently run into the hundreds of thousands, and sometimes millions, of dollars, and disputes over them can be lengthy.
Even a nomination that has been correctly made isn’t always free from this risk. In a recent Federal Court matter, a man had a binding nomination naming his de facto partner as sole beneficiary, but his family argued the relationship had already ended before his death. Because the nomination’s validity depended on that relationship still existing at the date of death, the dispute over whether the couple were still de facto partners moved through the trustee, then AFCA, then two separate court hearings, over five years, before the partner was ultimately awarded $1.2 million. The case is a reminder that a nomination’s validity can be called into question by a change in circumstances after it’s signed, a risk explored further below.
A relatively rare issue, but nonetheless could be devastating
Most advice about binding nominations focuses on self-managed super funds (SMSFs), where the trust deed needs to be reviewed carefully to confirm what is required for a valid nomination. But it is not safe to assume that nominations made through retail or industry super funds (the funds most working Australians belong to) will be carried out as written either.
Some retail and industry fund trust deeds include conditions that can cause an otherwise valid-looking nomination to fail. A deed might provide, for example, that a nomination ceases to apply if the member later marries, enters a de facto relationship, permanently separates from a partner, or has a child outside that relationship.
This means the trustee can look at what happened in the member’s life after the nomination was signed, so a nomination that appears perfectly valid on its face may not apply by the time the member dies.
This is particularly important for anyone relying on a binding nomination as a strategy to keep superannuation outside their estate.
Treating a nomination as a “set and forget” form carries real risk. The fund’s trust deed needs to be reviewed, and any nomination checked against it, every time there is a significant change in circumstances, as much as a Will should be reviewed after marriage, separation, or the arrival of a new child.
What this means for your estate plan
Superannuation deserves the same level of attention as any other major asset in an estate plan – arguably more, given the discretion that sits with the trustee in the absence of a clear, valid, and current instruction.
A properly drafted binding death benefit nomination remains the most reliable way to direct where superannuation goes after death.
It should be:
- Made in accordance with the rules within the fund’s trust deed, not only for SMSFs, but also for retail and industry funds where conditions can attach to a nomination’s validity.
- Reviewed after every significant change in circumstances, such as marriage, separation, a new relationship, or a new child.
- Renewed before it lapses, generally every three years, unless it’s a valid non-lapsing nomination (this can also be done by your financial attorney if you have lost capacity, as long as your superfund permits it).
- Considered alongside the Will, so that superannuation and the rest of the estate work together rather than at cross purposes.
Attwood Marshall Lawyers – helping you plan for the future and preserve your wishes
Superannuation can make up a significant part of someone’s wealth, and getting the nomination wrong can mean years of disputes for the people left behind.
Our Wills and Estates team can review your current superannuation nomination, check it against your fund’s trust deed, and make sure it works alongside your Will as part of a complete estate plan.
To discuss your superannuation and estate planning needs, contact our Wills and Estates Department Manager, Donna Tolley, for an appointment with one of our lawyers, on direct line 07 5506 8241, email dtolley@attwoodmarshall.com.au, or call 1800 621 071 any time. You can also book an appointment online using our online booking app.
