Passing on your super effectively can be challenging indeed

age_pensionOne of the key decisions you will need to make with your superannuation plans is what happens to any money left upon death. Perhaps the easiest way to think about some of the issues is to consider the following example.

Greg and Sally are about to retire. Their 2 sons, David and Andrew are aged 17 and 23 respectively. Greg’s 85 year old mother, Dawn, lives with them in the family home.

Greg and Sally plan to start account based pensions from their own super fund, drawing annual income payments. They also plan to update their Wills as they need to think about what will happen with any remaining pension amounts when they die. With superannuation, unlike other investments, members generally have the option of deciding upon death to:

  • Pay residual benefit amounts to their estate and distribute the proceeds via their Will; or
  • Have their death benefits paid directly to one or more superannuation dependants.

In this example, each spouse, David, Andrew and potentially Dawn could all be dependants of Greg or Sally which means working out how best to distribute a benefit is no easy matter.
Some of the advantages and disadvantages of paying the superannuation death benefit directly to the deceased’s estate are set out below.

Advantages and disadvantages of paying the estate directly


  • All assets of the deceased are collected together and distributed according to the deceased’s wishes as set out in the will (subject to any challenges under State laws).
  • It may be a much simpler exercise if all assets are collected together, instead of some being distributed directly to dependants.
  • Benefits can be paid to a broader range of beneficiaries.
  • Benefits from superannuation related sources can be distributed, via the estate, to a brother, a niece etc
  • If a person has no dependants, the only option is to pay the benefit to the estate.


  • The process of distributing benefits may be slow.
  • There may be negatives from a tax perspective (depending on who benefits under the estate), rather than paying dependants directly.
  • The flexibility in terms of the form of the death benefit is removed. Only a lump sum benefit can be paid to an estate. By making the lump sum payment to the estate, there is no option for an income stream to be paid to a qualifying dependant.
  • Lump sum death benefit payments made to the estate may be used to pay the deceased’s debts, or may be subject to claims by disappointed family members under State laws.

Since Greg and Sally like the option of having super death benefits potentially paid to one or more beneficiaries in the form of a pension, they decide that the option of paying directly to the estate will not be pursued. Subject to relevant provisions in the fund’s governing rules, members may make death benefit nominations which ‘bind’ the trustee to pay a benefit in accordance with instructions they provide. This makes a careful analysis of the fund’s trust deed provisions very important to establish what can actually occur upon death.

Since Greg and Sally are commencing pensions they may also have the option of using automatic reversionary nominations, whereby an income stream ’automatically ‘reverts to a nominated reversionary on the death of the original pensioner. This type of nomination is most appropriate where the beneficiary is a spouse, since adult children are not generally able to be paid death benefits in the form of a pension. If their trust deed is properly constructed, Greg and Sally are able to specify a broad range of instructions that could apply, including a flow of potential dependent beneficiaries.

Where no valid nominations have been made, or in the absence of specific provisions in a fund’s trust deed to permit specific ‘binding’ nominations, trustee discretion must be used to determine who receives the remaining benefits. However, leaving the decision to the trustees could, in some situations, lead to an outcome contrary to the deceased’s wishes. This approach needs to be carefully thought through in terms of who will control the fund when a member (and trustee) dies, so as to ensure that the deceased member’s intentions are carried out appropriately.

Clearly the can be many (sometimes competing) issues to consider when planning future benefit streaming. Accordingly, it is vital to ensure that a person’s Will and super fund benefit nominations work in harmony at all times to deliver the right outcome. This means bringing the financial and legal decisions together as part of coordinated plan to achieve the desired goals, otherwise the final result may contain some nasty surprises!

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