What Happens to Your Super When You Die: The Death Benefit Payment

How Super Death Benefits Work

When you die, your superannuation (super) doesn't automatically go to your estate or your family. Instead, your super fund's trustee decides who receives the money based on your will, your binding death benefit nomination, or the fund's rules. This payment is called a death benefit, and it can be paid as a lump sum or as an income stream to your dependants.

The key difference between super and other money you own is that super is held in trust. That means the trustee—not you directly—controls who gets it after you die. If you've never made a binding nomination, the trustee will look at your will, but they're not legally required to follow it. They'll distribute the money to whoever they think you would have wanted it to go to, which often means your spouse, children, or other dependants.

Death benefits are generally tax-free if they're paid to your dependants. If they're paid to someone who isn't a dependant—like an adult child with their own income, or a friend—tax may apply to the amount they receive.

Key Takeaways

• A binding death benefit nomination tells your super fund exactly who should receive your money when you die, and it overrides your will.
• Without a nomination, the trustee will distribute your super based on their view of who your dependants are, which may not match your wishes.
• Death benefits paid to spouses, children under 18, or people financially dependent on you are tax-free; payments to others may be taxed.
• You can change your nomination at any time, and it's worth reviewing it after major life events like marriage, divorce, or the birth of children.
• If your super fund can't find your dependants, the money may eventually go to the Australian Taxation Office (ATO) as unclaimed money.

Making a Binding Death Benefit Nomination

A binding death benefit nomination is a written instruction that legally requires your super fund trustee to pay your death benefit to the people you name. This is the strongest way to control where your super goes. Without one, the trustee has discretion, and they may not choose the people you would have wanted.

To make a binding nomination, you contact your super fund directly and ask for their death benefit nomination form. The form will ask you to name your dependants and specify how much each person should receive (usually as a percentage). You'll need to sign it, and most funds require your signature to be witnessed by someone who isn't a family member or beneficiary. Some funds now accept electronic signatures or online nominations through their member portal.

Binding nominations are valid for three years from the date you sign them. After three years, your nomination expires, and the trustee goes back to using their discretion. You can renew your nomination before it expires, or you can make a new one at any time. It's a good idea to review your nomination every few years, especially after major life changes.

Who Counts as a Dependant

Your super fund can only pay a death benefit to people who are legally considered your dependants. The definition matters because it affects both who can receive the money and whether tax is owed on it.

Dependants include your spouse (married or de facto), your children under 18, your adult children who are financially dependent on you, and anyone else who was financially dependent on you at the time of your death. A person is financially dependent if they relied on you for money to live on—not just for occasional help.

Adult children with their own income usually aren't dependants, even if you helped them out sometimes. Parents, siblings, or friends generally aren't dependants unless they lived with you and you paid for their living expenses. If you want to leave money to someone who isn't a dependant, you'll need to discuss this with your super fund, as the rules vary. Some funds allow non-dependant beneficiaries, but the payment may be taxed, and it may not be allowed under the fund's trust deed.

Tax on Death Benefits

Death benefits are treated differently from other income for tax purposes. If your super is paid to a dependant—your spouse, a child under 18, or someone financially dependent on you—the payment is tax-free, no matter how much it is.

If your super is paid to someone who isn't a dependant, the trustee must withhold tax before paying it out. The amount withheld depends on the person's age and the size of the benefit. For someone under 60, the tax rate is typically 39% plus the Medicare levy. For someone 60 or over, the tax rate is typically 15% plus the Medicare levy. These rates can change, so check with your super fund for the current rates.

The person who receives the payment will get a tax statement showing how much tax was withheld. They may be able to claim a tax offset or a refund when they lodge their tax return, depending on their overall income and circumstances.

What Happens If You Don't Make a Nomination

If you die without a binding death benefit nomination, your super fund's trustee has the power to decide who receives your death benefit. They'll look at your will, but they're not required to follow it. Instead, they'll use their judgment to work out who your dependants are and distribute the money accordingly.

This process can take time, and it may not result in the outcome you wanted. For example, if you wanted to leave money to a friend or a charity, the trustee may not be able to do that because those people aren't dependants. If you have multiple children and didn't specify how much each should get, the trustee will decide how to split the money, which might not match your wishes.

In some cases, if the trustee can't locate your dependants or work out who they are, your super may be held by the fund for a period of time. Eventually, if no one claims it, the money may be transferred to the ATO as unclaimed money. Your dependants can still claim it from the ATO, but the process is slower and more complicated.

Reviewing and Changing Your Nomination

Life changes, and your super nomination should change with it. If you get married, have children, go through a divorce, or your financial situation shifts, it's worth reviewing your nomination to make sure it still reflects what you want.

To change your nomination, contact your super fund and ask for a new nomination form. You'll fill it out the same way as before, sign it, and have it witnessed. The new nomination will replace the old one. Some funds allow you to update your nomination online through their member portal, which is faster than sending a paper form.

If your nomination expires (after three years), you can renew it by submitting a new form. If you don't renew it, the trustee will go back to using their discretion when you die. It's easy to forget about this, so consider setting a reminder on your phone or calendar to review your nomination every couple of years.

What Happens to Super in Different Relationship Situations

Your super is treated differently depending on your relationship status. If you're married or in a de facto relationship, your spouse is automatically considered a dependant and can receive your death benefit tax-free. If you're divorced, your ex-spouse is no longer a dependant unless a court order says otherwise (for example, if you were ordered to maintain them financially).

If you're in a same-sex relationship, your partner has the same rights as a spouse in a heterosexual relationship. De facto partners—people you live with in a genuine domestic relationship—are treated the same as married spouses for super purposes.

If you're single with no children, you may not have any dependants, which means your super fund won't have anyone to pay the death benefit to under the normal rules. In this situation, it's especially important to make a binding nomination naming someone you want to receive the money, even if they're not technically a dependant. Discuss this with your super fund to understand what options are available.

Frequently Asked Questions

Can my super be paid to my estate instead of to a person?

Most super funds won't pay death benefits to an estate because super is held in trust and must go to a dependant or a person named in a binding nomination. If you want your super to form part of your estate, you'd need to discuss this with your super fund, as the rules vary. Generally, it's not possible, and the money must go to a person.

What if I name someone in my will but don't make a super nomination?

Your will doesn't control your super. The trustee will look at it, but they're not legally bound to follow it. If you want to make sure a specific person gets your super, you must make a binding death benefit nomination with your super fund. A will alone won't do it.

Can I leave my super to multiple people?

Yes. In your binding nomination, you can name multiple beneficiaries and specify what percentage each person should receive. For example, you could nominate 50% to your spouse and 25% each to your two children. The trustee will distribute the death benefit according to your percentages.

Do I need a lawyer to make a death benefit nomination?

No. You can make a binding nomination yourself by filling out your super fund's form, signing it, and having it witnessed. You don't need a lawyer, though you may want to speak to one if your situation is complicated—for example, if you have a blended family or significant assets.

What if my super fund can't find my beneficiaries?

If the trustee can't locate the people you named in your nomination, they'll try to contact them through the information on file. If they still can't find them after a reasonable period, the money may be held in a suspense account or eventually transferred to the ATO as unclaimed money. Your beneficiaries can claim it from the ATO at any time, but it's better to make sure your fund has current contact details for everyone you name.