You Have a Will. But Will Your Super Really Go to the People You Love?

You Have a Will

But Will Your Super Really Go to the People You Love?

Most of us feel a quiet sense of relief once the will is signed. The document is tucked away somewhere safe, the executor has been chosen, and the people we love have been named. It feels like a job done.

But for many Australian families, there is a gap between what a will says and what actually happens to a person’s superannuation. And in my experience, it is a gap most people only discover when it is too late to fix.

For many people, super is one of the largest assets they will ever hold, sometimes larger than the family home. That makes it worth understanding properly.
This article is general information only. It is not legal advice, and every fund and every family is different. My aim is not to alarm anyone. It is to challenge a few very common assumptions and encourage you to ask some questions about your own arrangements.

A Will Does Not Control Everything You Own

Many people assume their will decides what happens to all of their wealth. In reality, a will generally deals with the assets that form part of your estate: things like property held in your name, bank accounts, shares and vehicles.

Superannuation is different. Your super is held in trust by the fund’s trustee, and it does not automatically form part of your estate. When a member dies, the trustee decides who receives the death benefit, guided by superannuation law, the fund’s trust deed and any valid nomination the member has made.

That means a will that says “everything to my children” may have no direct effect on your super at all. The consequences can be significant:

Your super may be paid to someone different from the person or people named in your will
It may be paid at a different time, and with different tax consequences
In blended families, it may leave someone less provided for than you ever intended

💡 Super can be paid to your estate, in which case it becomes part of what your will controls. But that only happens if the death benefit is directed that way, or if the trustee decides to do so. It should not be assumed.

You May Have Named a Beneficiary. But Is the Nomination Still Valid?

Many people have made a death benefit nomination at some point, often years ago when they joined a fund or started a new job. It is worth understanding what type of nomination you have, because they work very differently.

Non-binding nomination. This is a guide for the trustee. The trustee will consider your wishes but is not required to follow them.
Binding nomination. If it is valid, the trustee is generally required to pay the benefit as you directed. This can offer greater certainty, but only if the nomination meets all the requirements.

Here is the part that surprises many people. Depending on the fund, some binding nominations expire, commonly after three years, unless they are renewed or confirmed. Other funds offer non-lapsing nominations. In a self managed super fund, the rules depend on the fund’s trust deed. It is important to check how your own fund treats them.

A nomination can also become invalid for other reasons, including:

It was not signed or witnessed in line with the fund’s requirements
It names someone who cannot legally receive a death benefit directly
The person named has since died, or the relationship has changed
The percentages do not add up to 100 per cent
You moved to a new fund, as nominations generally do not transfer from one fund to another

When there is no valid nomination, the decision generally returns to the trustee, who will follow the trust deed and consider the circumstances of the family. That can mean uncertainty, delay and, sometimes, disagreement.

⚠️ A useful question to ask: when did I last check my nominations, and is each one still valid today? A nomination that was right ten years ago may no longer reflect your family.

Who Actually Receives Your Super When You Die?

The trustee’s role is to decide, within the law and the fund’s rules, who receives a death benefit. Generally, a trustee can pay a death benefit to:

A spouse, including a de facto partner
A child, of any age
Someone who was financially dependent on the member
Someone in an interdependency relationship with the member
The member’s legal personal representative, which means their estate

A person outside those categories, such as a financially independent sibling, a friend or a niece, generally cannot receive the benefit directly. They may only receive it if it is first paid to the estate and then distributed under the will.

Importantly, a trustee cannot simply act on a conversation you once had with your family. They must act on what is valid and documented. In a self managed super fund, the surviving trustees are often family members themselves, which can bring its own emotional and practical challenges at a very difficult time.

A fictional example

Image source: StockCake

Peter, 63, remarried eight years ago. His wife Helen is 58. Peter has two adult children from his first marriage, Emma and Daniel, who are both financially independent. His will says Helen can continue to live in the family home, with the remainder of his estate going to Emma and Daniel.

Peter has about $650,000 in super. Many years ago he signed a binding nomination naming Emma and Daniel equally. He did not realise it expired after three years, and never renewed it.
When Peter dies unexpectedly, there is no valid binding nomination. The trustee must decide, and it may consider paying all of the benefit to Helen, dividing it between Helen and the children, or paying it to the estate. Each is a lawful outcome. But none of them was decided by Peter. If everything were paid to Helen, Emma and Daniel may receive very little of it, particularly if Helen later changes her own will. If it were paid to the children, Helen may have less to support her.

Neither outcome is automatically right or wrong. The point is that the people Peter cared about were left to depend on a decision he never made.

This example is fictional and for illustration only. Actual outcomes depend on the fund’s trust deed, the trustee’s decision and each family’s circumstances.

Could Your Loved Ones Face an Unexpected Tax Bill?

This is the part of the conversation that many families have never had. The tax treatment of a super death benefit generally depends on two things: who receives it, and what components it is made up of.

A super benefit usually has a tax-free component and a taxable component. In very broad terms:

Lump sum death benefits paid to a spouse, a child under 18, a financial dependant or someone in an interdependency relationship are generally tax free. These people are known as “dependants for tax purposes”.
Lump sum death benefits paid to someone who is not a dependant for tax purposes, such as a financially independent adult child, may have the taxable component taxed. For a taxed element, the rate can be up to 17 per cent including the Medicare levy. Higher rates can apply to some untaxed elements.
The tax-free component is generally not taxed.

Many people are surprised to learn that a child can be a legal beneficiary of super and still pay tax on it, simply because they are an adult who no longer depends on the member financially.

Using Peter’s fictional example, if the full $650,000 were a taxable component (taxed element) paid to Emma and Daniel, the tax could be around $110,000. If the same benefit were paid to Helen as a spouse, it would generally be tax free. The numbers are illustrative only, but they show how much the choice of beneficiary can matter.

The same super balance can mean very different outcomes for different people, depending on who receives it.

Estate Planning Is Not Just About Death. It Is About Protecting the People You Love.

It is easy to think of estate planning as a task about the end of life. I see it differently. It is really about the people who will still be here, and whether the arrangements you have made will work the way you intended.

A good starting point is to look at how your documents work together, not just individually. For example:

Your will, and whether it still reflects your wishes
Your super death benefit nominations, with every fund you hold
Your life insurance, including whether it is held inside or outside super, who owns it and who would receive the proceeds. Insurance paid from super can also affect the tax outcome for some beneficiaries.
Enduring powers of attorney and other legal documents
For SMSF members, the fund’s trust deed and succession arrangements

Life changes, and documents often do not change with it. It is worth reviewing your arrangements after events such as marriage, separation or divorce, the birth of a child, a child reaching adulthood, the death of a loved one, a new fund, starting or selling a business, or retirement.

Some questions worth asking yourself:

Do my will and my super nominations tell the same story?
Do I have a nomination with each of my funds, and is it binding, non-binding or non-lapsing?
Is each person I have named eligible to receive the benefit?
Would any of my beneficiaries face tax on what they receive?
Have I updated everything since my family circumstances last changed?XXXXX

Estate planning involves legal, taxation and financial considerations that interact with each other. It is sensible to seek appropriate advice in each area. A financial adviser can help you understand how your super and insurance fit into your overall situation, but legal documents such as wills should be prepared by a qualified lawyer, and tax questions should be directed to a registered tax agent or tax practitioner.

💡 The question that matters is not “Do I have a will?” It is “Will everything I have put in place actually work together for the people I love?”

Having a will is a good start.

Making sure everything else says the same thing is the plan.

About the Author

Arunava Chaudhuri (Arun) is a Director and Financial Planner at Panacea Wealth Management, holding qualifications including MPAcct, BCom, GradDipFinPlan and SMSF Specialist designation.

He works with individuals, couples and families across retirement planning, superannuation strategy, SMSFs, wealth creation, wealth protection and personalised investment strategies. All advice is delivered in plain language, tailored to individual circumstances.

Panacea Wealth Management | panaceawealthmanagement.com.au

This article contains general information only and does not take into account any person’s objectives, financial situation or needs. Before making a financial decision, you should consider whether the information is appropriate to your circumstances and consider seeking personal financial advice. This article is not legal or taxation advice. Financial advisers do not provide legal services. Please seek advice from a qualified estate planning lawyer and a registered tax agent or tax practitioner about your own circumstances.