Does Your Will Control Your Superannuation?

What a Will Controls — and What It Does Not

A Will disposes of property you own personally at death: real estate held in your own name, bank accounts, shares, vehicles, personal effects and debts owed to you. A superannuation interest is different. It is held by the trustee of the fund on trust for members, subject to the trust deed and to superannuation law — principally the Superannuation Industry (Supervision) Act 1993 (Cth) (the SIS Act) and the Superannuation Industry (Supervision) Regulations 1994 (Cth) (the SIS Regulations).

• The trustee decides, within limits: on death the trustee must deal with the benefit in accordance with the governing rules, the SIS Act and Regulations, and any nomination that is valid and in force at the date of death. A direction in your Will does not bind the trustee.
• The eligible class is limited: a benefit can generally only be paid to a person who is a "dependant" within the meaning of section 10 of the SIS Act — broadly a spouse, a child of any age, a financial dependant or a person in an interdependency relationship — or to your legal personal representative.
• "Legal personal representative" is not limited to an executor named in a Will: for this purpose it is the executor of the Will or the administrator of the estate, including on intestacy and where no executor proves the Will. An executor's office derives from the Will, so an executor is not created only by a grant; the grant proves the authority. Separately, the trustee will commonly require probate or letters of administration before paying the estate. A valid binding nomination to the legal personal representative directs payment to the estate, but the Will operates on the money only once the estate has actually received it.
• The Will takes over only after payment: once the benefit has been received by the legal personal representative it is estate money, and it is administered under the Will or the intestacy rules like any other estate asset.

So the practical question is never "what does my Will say about my super?" It is "which pathway will my superannuation take, and does the destination match what my Will and my plan assume?"

What Makes Up a Superannuation Death Benefit

People tend to think of the death benefit as the account balance. It is often more than that, and the difference matters when you are comparing the value passing under the Will with the value passing outside it.

• The member's account balance: the accumulation interest, or the balance of a pension account, at the relevant time.
• Death (life) insurance held through the fund: where death cover is held inside super and the insurer accepts the claim, the insured amount may be added to, or form part of, the superannuation death benefit under the policy and the fund's governing rules, so it generally follows the same pathway. For a younger member, death cover can be far larger than the balance. Total and permanent disability cover is a different benefit, payable on disablement rather than on death, although a TPD benefit validly paid or credited to the member's account before death may already form part of that account.
• Other amounts payable under the fund rules: fund-specific insured or additional benefits expressly payable under the governing rules, and amounts credited before the benefit is paid.
• Taxable and tax-free components: the benefit is made up of components, and the mix affects the tax consequences for some recipients. Ask the fund for a current statement of the components rather than assuming.

A pension already being paid adds a further layer. If a pension has a valid reversionary beneficiary, the pension may simply continue to that person under the pension documents, which can operate separately from — or interact with — a nomination. Which document prevails depends on the fund's rules, the pension terms and the nomination itself. Our guide to binding death benefit nominations deals with reversionary pensions and nomination interaction in detail.

The Payment Pathways

However complicated the paperwork, the money can only take a limited number of routes.

1. Directly to an eligible dependant under a valid binding direction — the trustee pays the nominated person, and the amount does not pass through the estate.
2. To the legal personal representative under a valid binding direction to the estate — the amount is received by the executor or administrator and administered under the Will or intestacy.
3. As the trustee decides where there is no effective binding direction — the trustee exercises a discretion, within the eligible class, according to the governing rules and its duties, and may pay a dependant, the estate, or a combination.
4. As a continuing pension where a pension with a valid reversionary beneficiary is in place and the fund's rules give it effect.
5. Under a default rule where the governing rules prescribe an outcome — some rules default to the estate, others to the trustee's discretion.

A benefit can also be split across routes: part to a spouse, part to the estate. Whether it can be, and in what form (lump sum or pension), is a question of the fund's rules and superannuation law.

Direct Payment Compared With Payment to the Estate

This is the central coordination decision. Neither route is universally preferable, and the answer changes with the family, the fund, the benefit components, the estate's liabilities and the rest of the estate plan.

Read the table as a list of trade-offs rather than a scoreboard. Neither route is presumptively "best". A direct payment may be considered where an eligible spouse or other eligible dependant is the intended recipient and speed and treatment outside the estate support the plan, but the tax components, liquidity needs, the state of the relationship, claim risk and the wider estate plan must still be assessed. A blended family, a vulnerable beneficiary, a testamentary trust or a wish to benefit people outside the superannuation class often points towards the estate, provided the tax and claim consequences are understood. Blended-family strategy is developed in our guide to superannuation in blended families and second relationships.

How Nominations Fit With the Will

A nomination is the instrument that connects your intentions to the trustee. At the level of coordination there are only a few things you need to know; validity and execution are covered in the pillar guide.

• Binding directions: if valid and in force at the date of death, a binding direction requires the trustee to pay the nominated eligible person, or the legal personal representative, as directed.
• The lapsing mechanism: a nomination made under the mechanism associated with section 59(1A) of the SIS Act and regulation 6.17A of the SIS Regulations ceases to have effect after three years, or after any shorter period fixed by the fund's governing rules. Do not assume every lapsing nomination runs for exactly three years — check the fund's form, its rules and the expiry date the fund records.
• Non-lapsing arrangements: where an APRA-regulated fund offers a non-lapsing nomination, that is a different mechanism supported by the particular fund's governing rules and trustee process. It is not simply a regulation 6.17A nomination extended by contrary deed wording, and its requirements come from the fund.
• Self-managed funds are not covered by regulation 6.17A: in Hill v Zuda Pty Ltd [2022] HCA 21 the High Court held that regulation 6.17A does not apply to SMSFs. Validity for an SMSF depends on the current deed and its amendments, the applicable law, the terms of the nomination and any pension documents.
• Non-binding nominations: an expression of wishes. The trustee retains a discretion under the governing rules and must exercise it consistently with its duties.

For validity and execution requirements, eligible nominees, lapsing and non-lapsing mechanisms, attorneys and capacity, reversionary pensions, the case law and how nominations are challenged, see the detailed guide: binding death benefit nominations in Victoria.

What Happens Without an Effective Binding Direction

It is often said that an invalid or expired nomination simply "has no effect". That is too broad. What happens depends on the fund's governing rules, which may provide that a defective or lapsed nomination is:

• disregarded entirely;
• treated as non-binding guidance the trustee may take into account;
• left to one side so that the trustee exercises a discretion among dependants and the legal personal representative; or
• displaced by a default payment rule in the governing rules — for example payment to the estate.

Whichever applies, the trustee must decide in accordance with the governing rules and its duties as trustee, which ordinarily requires it to identify the potential recipients and give the decision proper, genuine and real consideration. That process takes time, particularly where several people put themselves forward, and the outcome may not be the one you would have chosen. Where a decision is objected to, there are internal, external and court pathways — see our guide to superannuation death benefit disputes for the procedure and time limits.

Tax and Testamentary Trusts, at a High Level

Tax is where the coordination question most often surprises people, because superannuation law and tax law use similar words for different concepts.

• Eligibility (who may be paid): section 10 of the SIS Act defines "dependant" for superannuation purposes, and that definition includes a child of any age. Being eligible to receive a benefit says nothing about how it will be taxed.
• Tax status (how it is taxed): section 302-195 of the Income Tax Assessment Act 1997 (Cth) defines a "death benefits dependant" for tax purposes. An adult child is not ordinarily a death benefits dependant merely by being a child, so the taxable component of a lump sum paid to them can be taxed.
• Payment to the estate: where the benefit is paid to the legal personal representative, section 302-10 of that Act generally looks to the beneficiaries who have benefited, or may be expected to benefit, from the amount. Sending money through the estate therefore does not change who is treated as the relevant person.
• Components and form matter: the split between taxable and tax-free components, and whether the benefit is paid as a lump sum or a pension, both affect the outcome.

It follows that routing a benefit into a testamentary trust does not by itself eliminate or reduce superannuation death benefit tax. A testamentary trust can be valuable for control, asset protection and providing for beneficiaries over time, and it can affect how income is later taxed in the hands of beneficiaries, but it is not a way to make the death benefit tax disappear. Nor is it accurate to assume the gross benefit reaches the named Will beneficiary intact: once in the estate it is subject to administration expenses, liabilities, applicable tax and the proper administration of the estate.

Adult-child tax treatment and dependency questions are developed in our guide to superannuation death benefits and adult children, and the Australian Taxation Office publishes current guidance on death benefits. Parke Lawyers provides legal advice on Wills, nominations and estate structuring. We do not provide personal financial product, investment or tax advice; those questions belong with a licensed financial adviser and a qualified tax adviser, working alongside us.

Marriage, Separation, Divorce and Changed Circumstances

A common and costly assumption is that marriage, separation or divorce automatically cancels a superannuation nomination. It does not follow automatically. Whether a nomination still operates depends on:

• whether the nominated person is still within an eligible class at the relevant time — a former spouse may or may not be, depending on the facts;
• the fund's governing rules, some of which address the effect of relationship changes and some of which do not;
• the terms of the nomination form itself, including any condition or revocation wording; and
• the circumstances as they stand at the date of death.

That is a different question from what marriage or divorce does to a Will. In Victoria, marriage and the ending of a marriage can have specific statutory consequences for a Will and for particular gifts and appointments in it. The two regimes are not aligned, so a life event can easily leave a Will and a nomination pointing in opposite directions. Treat the following as prompts to review both documents together:

• marriage, or the start of a de facto relationship;
• separation, divorce or a property settlement;
• the death of a nominated beneficiary, or the birth or adoption of a child;
• changing funds, or rolling a balance to a new fund;
• commencing, changing or consolidating a pension, including any reversionary arrangement;
• a change in insurance cover held inside the fund, including cover ceasing; and
• declining capacity, or the appointment of an attorney or administrator — nominations made by an attorney raise their own issues.

SMSFs and Pensions: Separate Control Documents

For self-managed fund members there is a further layer: whoever controls the fund after your death is, in practice, the person applying the deed to your benefit. At a high level, the coordination points are these.

• Who becomes or remains trustee: for an individual-trustee fund, who continues as trustee; for a corporate trustee, who holds the shares and who is appointed as director.
• The limited pathway for a legal personal representative: section 17A of the SIS Act contemplates a deceased member's legal personal representative acting as trustee or director in place of the member for a limited period, subject to conditions.
• Deed and constitution requirements: the deed, the company constitution and any succession documents control appointments, removals and voting, and need to be consistent with each other and with your Will.
• Nominations and pensions: a valid nomination, or a pension with a valid reversionary beneficiary, can substantially remove or shape the surviving trustee's discretion.

For the detailed treatment of trustee and director succession, the section 17A pathway, corporate trustees and deed administration after death, see our guide to what happens to an SMSF when a member dies.

A Coordinated Planning Checklist

Coordination is mostly a document-gathering exercise followed by an honest reconciliation. Collect the following, then check that they describe one plan rather than several.

1. Your current Will and any codicils — including who the executors are and any substitution provisions.
2. The fund's current deed or rules, or the fund's current nomination requirements — for an APRA-regulated fund, the product disclosure material and nomination form terms.
3. Every nomination you have made, for every fund, with written confirmation from each fund that the nomination is currently valid and of any expiry date or confirmation requirement.
4. Current account balances and insurance cover held inside each fund, and a statement of the taxable and tax-free components.
5. Pension documents, including the terms of any pension in payment and any reversionary beneficiary nomination.
6. Your intended recipients, and for each of them their status both under section 10 of the SIS Act and as a death benefits dependant for tax purposes.
7. The estate's likely liabilities, its exposure to Victorian family provision proceedings, and the terms of any testamentary trust provisions in the Will.
8. SMSF succession documents — deed, company constitution, shareholdings, appointment and removal powers and any enduring power of attorney relied on.
9. Adviser boundaries — who is advising on the law (your lawyer), on the financial product and strategy (a licensed financial adviser) and on tax (a qualified tax adviser), and who is responsible for lodging and confirming each document.

Then ask the reconciliation question for each fund: if I died tomorrow, where does this benefit go, under which document, and is that consistent with my Will?

Two Worked Examples

These illustrations are simplified and general. They are included to show how coordination fails, not as advice on any particular arrangement.

Example 1 — the Will that never sees the money. A member's Will leaves "my superannuation" equally between her three adult children. Her fund holds a binding nomination in favour of her second spouse, signed some years earlier and still valid under the fund's rules. On her death the trustee pays the whole benefit, including a substantial insurance component, to the spouse. The gift in the Will has nothing to attach to, because the benefit never became estate property. Had she wanted the Will to operate, she needed a valid direction to her legal personal representative, and to consider the tax consequences for adult children and the estate's exposure to claims.

Example 2 — the direction that quietly expired. A member nominated his legal personal representative so that his benefit would fund a testamentary trust for his young children. The nomination was made under his fund's lapsing mechanism and ceased to have effect three years later; he did not confirm it. On his death the trustee has no binding direction and, under the governing rules, exercises its discretion. It pays the benefit directly to his surviving de facto spouse, who is the children's other parent and was living with him on a genuine domestic basis at the date of death, and so is a spouse within the eligible class. The trust in the Will is never funded. A calendar reminder tied to the fund's recorded expiry date, or a non-lapsing arrangement if his fund offered one, could have avoided the gap.

Key Takeaways

• A Will does not control superannuation unless the death benefit is paid to your legal personal representative and becomes estate money.
• "Legal personal representative" means the executor of the Will or the administrator of the estate, including on intestacy; the executor's office derives from the Will, while the trustee will commonly require probate or letters of administration before paying.
• The benefit can include death cover held inside the fund and other amounts under the governing rules, and a reversionary pension may operate on its own terms.
• Direct payment and payment to the estate are genuine alternatives with different consequences for control, eligibility, tax, creditors, family provision claims and timing.
• Eligibility under the SIS Act and tax dependency under the tax law are different tests, and a testamentary trust does not remove death benefit tax.
• Do not assume a nomination lasts exactly three years, or that marriage or divorce cancels it. Confirm the position with the fund in writing.

If you would like advice on your Will, death benefit nominations, SMSF succession or coordinated estate planning, our superannuation and SMSF succession team can help.

Sources

• Superannuation Industry (Supervision) Act 1993 (Cth) — current compilation, including section 10 (dependant, spouse, child and legal personal representative) and section 59.
• Superannuation Industry (Supervision) Regulations 1994 (Cth) — current compilation, including regulation 6.17A and the death benefit payment standards in regulations 6.22 and 6.22A.
• High Court of Australia — Hill v Zuda Pty Ltd [2022] HCA 21 — regulation 6.17A does not apply to self-managed superannuation funds.
• Income Tax Assessment Act 1997 (Cth) — current compilation, including section 302-10 (benefits paid to the legal personal representative) and section 302-195 (death benefits dependant).
• Australian Taxation Office — superannuation death benefits.
• ASIC Moneysmart — Who gets your super if you die?

Frequently Asked Questions