For most working Australians, superannuation is their largest asset — often worth more than the family home. Yet it's also the asset most likely to be distributed in ways the deceased never intended.
The reason? Your will doesn't control your super.
Why Your Will Doesn't Cover Your Super
Superannuation sits outside your estate. It is held in a trust by your super fund, not by you personally. When you die, the trustee of your fund decides who receives your superannuation death benefit — unless you've put a valid nomination in place.
Without a nomination, your fund's trustee has discretion to pay your super to any "dependant" as defined under super law, or to your estate. Their definition of dependant may not match yours — and their decision cannot be overridden by your will.
What Is a Binding Death Benefit Nomination?
A binding death benefit nomination (BDBN) is a legally binding instruction to your super fund specifying who receives your superannuation when you die, and in what proportions. When a valid BDBN is in place, the trustee must follow it — they have no discretion.
Eligible recipients are:
- Your spouse (including de facto)
- Your children (including stepchildren and adopted children, of any age)
- Anyone financially dependent on you at the time of death
- Anyone in an interdependency relationship with you
- Your legal personal representative (i.e. your estate, so your will applies)
Non-Binding vs. Binding Nominations
Most funds offer both types:
- Non-binding nomination — guides the trustee but doesn't bind them. They can override it if they believe another outcome is more appropriate. Not recommended if you have a clear preference.
- Binding death benefit nomination — the trustee must follow it, provided it is valid. This is what most people want.
- Non-lapsing binding nomination — doesn't expire. Standard BDBNs lapse after three years if not renewed (though this is changing for some funds).
The Three-Year Trap
Most binding death benefit nominations expire every three years. If you don't renew yours, it lapses — and the trustee reverts to discretion. This catches many families by surprise.
Review your nomination every time you review your will, and set a reminder to renew it before it expires. Your Custodium Vault is a good place to record the expiry date alongside a copy of the nomination form.
Tax on Superannuation Death Benefits
How your super is taxed on death depends on who receives it:
- Tax-free to a dependant (spouse, minor child, financially dependent adult child): super paid as a lump sum is generally tax-free.
- Potentially taxable to a non-dependant (e.g. an adult child who is financially independent): the taxable component of super may attract tax of up to 17% (15% + Medicare levy).
- Paid to estate then distributed by will: tax treatment depends on the ultimate recipient.
A testamentary trust established in your will can be an effective way to manage the tax treatment of superannuation for adult children. An estate planning attorney can advise on the right structure for your situation.
What About a Self-Managed Super Fund?
If you have a self-managed super fund (SMSF), the rules are even more important to get right. The trust deed of your SMSF governs how death benefits are handled, and a poorly drafted deed — or a lapsed nomination — can result in years of dispute.
SMSF members should ensure their trust deed expressly allows binding nominations and that any nomination is consistent with the deed's requirements. Our estate planning team works with SMSF members to ensure their super and estate plan work together.
The Action List
After reading this, do three things:
- Find your super fund's current nomination form. Log in to your fund's portal or call them.
- Check whether you have a binding nomination and when it expires. If it's lapsed or non-binding, renew or upgrade it.
- Store a copy in your Custodium Vault — so your family and executor can find it when it matters.
And if you don't have a will that aligns with your super nominations, or if you'd like to explore whether a testamentary trust makes sense for your family, our estate planning team can help. Request a confidential consultation today.