Where does your super go when you die?

We take a closer look at death benefit nominations.

What are death benefit nominations?

A death benefit is made up of any super you have left over when you die and any death cover. Your super fund can pay it to your beneficiaries, such as a spouse or child.

You can tell your fund where to direct your money when you die, but it’s easy to overlook making a nomination and the process can be confusing. 

Many people assume that your will dictates where any remaining super goes, but this isn’t the case. 

Binding vs non-binding

Death benefit nominations in super may be binding or non-binding. A binding nomination means your super fund must pay the money to the people you nominate and in the proportion you choose. 

If you make a non-binding nomination, your fund will refer to your wishes but has some discretion where to pay your money. 

Many funds only offer non-binding nominations.

Lapsing vs non-lapsing

Nominations may be lapsing or non-lapsing. A non-lapsing nomination stays in place until you die, while a lapsing nomination generally only lasts for three years. You can then renew the nomination. It may also be a good time to update it as your circumstances (e.g. family structure) may have changed.

Most funds only offer lapsing nominations.

Why do nominations lapse?

The logic is that sometimes relationships end or circumstances change, and a person’s original nomination may no longer reflect their wishes. 

If you made a binding nomination and it lapses, but you don’t renew, it becomes non-binding.

Some of the super funds Super Consumers Australia talked to said they’re proactive about informing members if their nomination is about to lapse. MLC said it sends members a notice to renew (if appropriate), and the status of the nomination is also shown on each annual statement.

Similarly, Aware Super statements include an ‘Action alert’ if a nomination has lapsed or is about to lapse.

A spokesperson for Sunsuper said fund members can see the status and expiry date of any nomination they’ve made on the online dashboard or in their annual statement. The fund also contacts members 90 days before a nomination lapses, and again if the nomination does lapse.

Invalid death benefit nominations

For your death benefit nomination to be valid (remember a fund doesn’t have to follow an invalid nomination), it needs to be:

• in writing
• signed
• dated
• witnessed by two adults (who aren’t beneficiaries)
• sent to the trustee (your super fund)
• complete (the different proportions need to add up to 100%).

You can usually download a nomination form from your fund’s website or contact them for more details.

It’s also important to know that you can’t nominate just anyone to be a beneficiary. A beneficiary can only be a legal personal representative or a dependent beneficiary. 

This rule means you can’t nominate someone like a parent, sibling, grandchild or friend unless they’re financially dependent on you.

If you want any remaining super to go to someone who isn’t a dependent, you can nominate a legal personal representative to distribute your remaining super in accordance with your will. The legal personal representative is the executor of your will or the administrator of your estate, or a person who you’ve granted enduring power of attorney. This person doesn’t have to be a lawyer.

A beneficiary can only be a legal personal representative or a dependent beneficiary … you can’t nominate someone like a parent, sibling, grandchild or friend unless they’re financially dependent on you

Some funds have tried to avoid invalid nominations by having a column on their nomination form where you tick the category of relationship you have with each person you nominate. This makes clear you can only nominate a dependant (spouse, child, someone financially dependent or interdependent on you) or your legal personal representative.

You have more freedom in your will to distribute any leftover money however you see fit (i.e. you can leave money in a will to a sibling, friend or parent that isn’t financially dependent on you), but be aware that wills have their own rules. You may want to seek advice on drafting your will and any tax implications.

What if your nomination is invalid or missing?

In this case, your super fund will distribute any remaining super.

Having your super fund control where your money goes may sound alarming, but often this may be a fairly straightforward process. 

“Disputed death benefits are rare,” says a spokesperson for Aware Super. “We do work hard to try and make that process as transparent and straightforward as possible.”

The fund can check if you have made a will and use that as a guide. They will also identify if you have any dependents, such as children or a spouse; again, they can only give the money to your dependents. 

If you die with no dependents, the money will go to your estate.

Where things may become tricky is if it’s unclear whether someone is your dependent (for example, if you’re in a spouse-type relationship with someone but you’re not married to them) or if you want your money to go to someone who isn’t a dependent.

Funds have to make the process clear

Given the importance of leaving your money to the right people after you die, Super Consumers Australia director Xavier O’Halloran says funds have a responsibility to help people make valid nominations.

“We had a person contact us recently who was completely confused by what her fund had told her. This led us to have a much closer look at how funds are communicating with their members about what happens to a person’s super when they die.”

Disputes over how a super fund distributes the money

If you’re unhappy with how a fund is distributing someone’s remaining super, you can contact the fund in the first instance. 

If you’re still not satisfied, you can complain to the Australian Financial Complaints Authority (AFCA). You can then take the matter to court if you disagree with AFCA’s decision.

Death benefit nominations are the third most common cause of complaints about super at AFCA.

The Australian Law Reform Commission has recognised that the fund’s discretion to pay death benefits as they see fit “in many cases gives rise to many complaints.”

Death benefit nominations are the third most common cause of complaints about super at AFCA

AFCA has the power to make super funds change their decisions on who gets the money.

While the AFCA process is designed to be quicker and easier than going to court, having a tribunal dig into your family’s relationships and finances may be a stressful process. It can also take much longer than if a valid nomination was in place.

With this in mind, the best thing to do is to ensure your nomination is valid and your loved ones won’t have to go through this process after you die.

Bethany’s story

Bethany is a CHOICE member who contacted us after she couldn’t get answers from her fund, Australian Super, about its death benefit nomination process.

One of the fund’s forms noted that they would use “their discretion” to distribute any remaining super if members died without a valid nomination.

“There is no explanation on the form as to what ‘their discretion’ means or if there’s a cost to it,” Bethany says. “I have no choice but to sign the form with this clause and another clause that I knowingly agree to [the fund exercising its discretion], and understand it. Well, I don’t!”

Bethany also sought more information from the fund on why it only allowed lapsing nominations. She says the only reply was “It’s a fund rule,” and the staff member she spoke to couldn’t find any information about how the fund would use its discretion.

In an email to Super Consumers Australia, an Australia Super spokesperson said it would consider the member’s wishes but would use its discretion when paying out an account balance and any insurance.

“The Fund works within the strict legal guidelines to determine who receives a payment,” the spokesperson said.

How do super funds exercise their discretion?

If there is no valid and binding death benefit nomination, your super fund has the discretion to distribute the money how they see fit.

This discretion doesn’t mean the super fund can do whatever it likes with the money; it is still bound by superannuation law on this point.

The super funds we spoke to outlined their processes for working out who to pay when they have discretion.

Some funds noted that they’re legally required to comply with the trust deeds they created. These deeds are essential for any kind of trust (an arrangement where someone looks after your money on your behalf); they set out how the fund will operate. Still, very few people would think to locate and read their fund’s trust deed. 

If there is no valid and binding death benefit nomination, your super fund has the discretion to distribute the money how they see fit

A spokesperson for Aware Super says it’ll look at the late member’s Death Certificate to see if they had a spouse or any children. The fund will also use any invalid or non-binding nomination as a guide. Further, the fund can refer to any discussions the member had with a financial planner at the fund. Finally, it can contact potential beneficiaries for further information. 

The approach at HOSTPLUS is similar; the fund will consider any beneficiaries it can identify from the deceased’s finances, the person’s will and any non-binding nomination they made. Finally, the fund will bear in mind “the purpose for which death benefits are provided for” in this context, which is, broadly speaking, to assist any people who were financially dependent on the person who died.  

Recent decision: Mother found not to be a dependant

AFCA or a court can’t direct money to go to someone who doesn’t fit the definition of dependant or who isn’t in an interdependent relationship with the dead member, even if it seems fair or reasonable for this to happen. 

An example of how the law works is a sad case which AFCA recently decided. The deceased member was a young man who had endured many health problems and lived at home for his whole life. The tribunal noted that “his mother provided him with emotional support and was his constant companion as he underwent medical treatment and stays in hospital”. 

Ultimately, however, AFCA found that the young man had bought a home with his fiancée and intended to move out of his mother’s house before he died. This meant that the mother/son relationship wasn’t categorised as interdependent and that she couldn’t get any of his death benefit money. All of the money went to his fiancée instead.

This case shows how strictly these criteria can be interpreted.

Ashleigh Petrie’s case

People have raised questions about the fairness of death benefit distributions after a recent case involving a magistrate and his younger partner who had passed away. The case involved super fund REST which paid the death benefit for 23-year-old Ashleigh Petrie to her fiancé, the magistrate, instead of her mother. This was despite Petrie having nominated her mother as her beneficiary and the magistrate earning a $324,000 annual salary.

After a dispute which has spanned more than a year, the mother appealed the decision to AFCA.

The mother and the magistrate later agreed to a financial settlement on how Petrie’s super would be divided.

The super fund apparently considered the nomination to be invalid as a parent isn’t automatically a dependant. 

It’s possible AFCA (or a court) could have eventually ordered at least some of Petrie’s super go to her mother if they find she was financially dependent on her late daughter. In this case, Petrie had financially supported her mother, who was living in modest circumstances, by transferring her money for groceries and clothes. 

In reviewing the decision, AFCA could have also looked at whether the young woman and the magistrate were correctly considered spouses by the super fund; they were engaged but had only lived together for four months. If they weren’t in a de facto relationship, Petrie’s partner would not be considered a dependant and thus not a valid person to get her death benefit.

Taking the stress out of death benefit nominations

While death benefit distributions are generally straightforward, the best way to have peace of mind about where your money goes after your death is to have a valid nomination in place. 

The key things to remember are:

• you can either leave super to a dependant or to a legal personal representative (which allows for your super to become part of your will)
• your nomination may lapse (usually after three years). When this happens your nomination can still be used as a guide by your fund, but you can renew it for greater peace of mind
• making a valid nomination can be very technical; talk to your fund if you’re unclear about the process or how to make a valid nomination.

This content was produced by Super Consumers Australia which is an independent, nonprofit consumer organisation partnering with CHOICE to advance and protect the interests of people in the Australian superannuation system.