Binding death benefit nominations: making sure your super goes where you want

Does my will cover my super?

Not automatically. Moneysmart puts it simply: your will does not automatically cover your superannuation, and the money in your super account doesn't automatically form part of your estate.

Your super is held in trust by your fund's trustee, who pays it out under the fund's rules and super law. Life insurance held inside super is usually paid out with it as part of the death benefit, so the amount can be far more than your balance.

Your will only deals with super that the fund pays to your estate. That happens if you nominate your legal personal representative, or if the trustee decides to pay it that way.

How is super paid when you die?

Under the super regulations (SIS Regulations reg 6.22), the trustee can pay a death benefit only to your dependants or your legal personal representative. Only if it can't find either, after reasonable enquiries, can it pay someone else.

So a nomination in favour of someone who isn't a dependant, such as a friend or a sibling you don't live with, won't be followed. If you want them to have your super, nominate your legal personal representative and leave it to them in your will.

Who counts as a dependant for super?

Under section 10 of the Superannuation Industry (Supervision) Act 1993, your dependants include:

• Your spouse, including a de facto partner of any sex and a partner in a registered relationship.
• Your children, of any age, including adopted children, stepchildren, ex-nuptial children and your partner's children.
• Someone in an interdependency relationship with you: a close personal relationship where you live together, one or both of you supports the other financially, and one or both provides domestic support and personal care. A disability can mean you qualify without meeting all of those.
• Anyone financially dependent on you, because the definition also covers dependants in the ordinary sense of the word.

Your legal personal representative is the executor of your will, or the administrator of your estate if you don't have a will. Super paid to them is dealt with under your will.

Binding, non-binding and non-lapsing nominations

What makes a binding nomination valid?

For most funds (other than self-managed funds), regulation 6.17A says a binding nomination must be:

• In writing, usually on your fund's own form.
• Signed and dated by you in front of two witnesses who are both 18 or over and not named in the nomination.
• Accompanied by a declaration signed and dated by both witnesses.
• Limited to your dependants and your legal personal representative.
• Kept current: it stops having effect 3 years after you first signed it or last confirmed or changed it. You can confirm it by sending the trustee a signed, dated written notice.

Reversionary pensions

If you've already started a pension from your super, it normally stops when you die. If it's set up as reversionary, the person named, usually your spouse, automatically becomes entitled to the income stream on your death. Check how this sits with any nomination you've made.

How do binding nominations work in an SMSF?

Self-managed super funds are different. The ATO's view, and the High Court's 2022 decision in Hill v Zuda Pty Ltd, is that regulation 6.17A doesn't apply to SMSFs. Instead, the fund's trust deed sets the rules: whether nominations are allowed, how they must be made and whether they lapse.

The ATO says your fund's trust deed must be followed, even if it's different from a member's will. Read the deed, and make sure your nomination follows it exactly.

Control of the fund matters too. The Willies Complete Will deals with SMSFs: it records that your interest follows the fund's deed, authorises your executor to act as trustee or director in your place as section 17A of the SIS Act allows, appoints your chosen successor where the deed permits, and gives any shares in the trustee company to that person.

How are super death benefits taxed?

Tax depends on whether the person receiving it was your dependant for tax purposes, which is narrower than for super law. Adult children, for example, are dependants for super but only count for tax if they were financially dependent on you.

So who you nominate can change how much your family actually receives. With a large balance or life insurance in super, an accountant or financial adviser can help you weigh it up.

Should my super go to my estate or straight to my dependants?

• Straight to your dependants. The fund pays them directly, so the money doesn't pass through your estate and your executor doesn't handle it. This suits most people whose partner or children should simply receive their super.
• To your legal personal representative. Your will then decides. You can leave super to people who aren't dependants, put it in a testamentary trust, or balance it against other gifts. But it becomes part of your estate, so it's dealt with alongside your debts and any claims on the estate.

Whichever you choose, make your will and your nomination agree. A will that leaves everything to your children doesn't override a binding nomination in favour of your partner, and the reverse is true too.

How do I check and update my nomination?

1. Log in to your fund or check your latest statement to see what nomination it holds, and whether it's binding, non-binding or non-lapsing.
2. Check which types of nomination your fund allows.
3. Make sure everyone you name is eligible: a dependant or your legal personal representative.
4. Use your fund's form. Sign it in front of two adult witnesses who aren't named in it, and have them sign the declaration.
5. Send it to the fund and keep its written confirmation.
6. If it lapses, set a reminder to renew it before 3 years are up. Moneysmart suggests your annual statement as a prompt.
7. Review it after any big change: a new partner, a separation, a new child or a death in the family.

If you nominate your legal personal representative, Moneysmart's advice is to make sure your will is up to date too.

How Willies handles super

The Willies questionnaire asks whether you've made a binding death benefit nomination, and your will covers any super that is paid to your estate. Your digital legacy plan can list your super funds and insurance, so your executor knows where to start. If you run an SMSF, the Complete Will deals with it.