When you die, your superannuation does not automatically form part of your estate and pass under your Will. Instead, the trustee of your super fund decides who receives your super — unless you have made a valid binding death benefit nomination (BDBN). Understanding how death benefits work is one of the most important parts of super estate planning.
Who Can Receive Your Super Death Benefit?
Super can only be paid to a dependant or to your legal personal representative (your estate). A “dependant” for super purposes is defined under the Superannuation Industry (Supervision) Act 1993:
- Your spouse or de facto partner (including same-sex)
- Your children of any age (including adopted, stepchildren, ex-nuptial)
- Any person in an interdependency relationship with you — where two people live together, one has a financial, domestic, or personal dependency on the other (e.g. an elderly parent you care for)
- Any person who was financially dependent on you at the date of death
Key point: Adult children who are financially independent are generally dependants for the purpose of receiving super death benefits, but are not dependants for tax purposes — which affects how the payment is taxed (see below).
Trustee Discretion — The Default
If you do not have a valid binding death benefit nomination, the trustee of your fund has discretion to decide who among your dependants (and/or your estate) receives the death benefit, and in what proportions.
The trustee must:
- Consider all potential beneficiaries
- Act in accordance with the fund’s trust deed and the SIS Act
- Act in good faith and not arbitrarily
This means that without a BDBN:
- There is no guarantee your super will go to who you want
- Disputes between family members can delay payment
- The trustee may make a decision you would not have chosen (e.g. paying the estate rather than directly to a surviving spouse)
Binding Death Benefit Nominations (BDBNs)
A BDBN is a formal instruction to the fund’s trustee about who should receive your death benefit and in what proportion. If valid, the trustee must follow it — they have no discretion.
Types of BDBNs:
- Lapsing BDBN: Valid for 3 years and then expires — you must renew it. Most industry and retail funds use lapsing BDBNs
- Non-lapsing BDBN: Does not expire — remains valid until you change or revoke it. Available at some funds (check your fund’s rules). Generally available in SMSFs
See Binding Death Benefit Nomination — Complete Guide for the full process.
Paying Super to the Estate
If you nominate your estate (your “legal personal representative”) as the beneficiary, the super is paid to your estate and distributed according to your Will. This:
- Allows your super to benefit people who are not SIS dependants (e.g. friends, charities, adult children not financially dependent on you)
- Passes the super through probate — which can be slower and involves costs
- May result in the same tax outcome for non-dependants (as they still pay death benefit tax)
Important: You cannot leave super directly to a non-dependant (e.g. a financially independent adult child). If you want them to benefit, it must pass through your estate — and they will pay tax on the taxable component.
Tax on Super Death Benefits
The tax on a super death benefit depends on who receives it — not on the deceased’s age.
Dependants for Tax Purposes
The following are dependants for tax purposes (different from SIS dependants):
- Spouse / de facto partner
- Children under 18
- People in an interdependency relationship with the deceased
- People financially dependent on the deceased
Death benefits paid to tax dependants: Tax-free — the entire payment (both tax-free and taxable components) is received tax-free.
Non-Dependants for Tax Purposes
Adult children who are not financially dependent on the deceased, and other non-dependants, pay tax on the taxable component of the death benefit:
- Taxed element of taxable component: 17% (15% + 2% Medicare levy)
- Untaxed element of taxable component: 32% (30% + 2% Medicare levy) — relevant for some government schemes
The tax-free component is always received tax-free by any beneficiary.
Recontribution Strategy — Reducing Death Benefit Tax
Because the taxable component attracts 17% tax when paid to non-dependant adult children, some retirees undertake a recontribution strategy to reduce the taxable component:
- Withdraw a lump sum from super (tax-free if over 60)
- Recontribute the amount as a non-concessional contribution (subject to NCC cap and TSB limits)
- The recontribution creates a tax-free component — reducing the taxable component subject to the 17% death benefit tax
This is a legitimate estate planning strategy but involves careful planning around contribution caps and age limits. It requires professional advice to implement correctly — general information only here.
Insurance Inside Super and Death Benefits
If you have life insurance (death cover) through your super fund — which most Australians with industry funds do — the insured amount is paid into your super account on death and distributed as part of the death benefit under the same rules.
This means:
- The insurance payout can also be directed via your BDBN
- The tax treatment of the insurance component is the same as other super death benefits (tax-free to dependants, 17% to non-dependants)
- The insurance in your super is not automatically paid tax-free to adult children — a common misconception
Reversionary Pension
An alternative to a lump sum death benefit is a reversionary pension — where an account-based pension continues to pay to a nominated spouse or dependent child on the member’s death. The reversionary beneficiary must be a dependant (spouse, or minor child under 18, or financially dependent child under 25 if a full-time student).
A reversionary pension:
- Continues paying the same income stream to the spouse without interruption
- Is counted against the reversionary beneficiary’s Transfer Balance Cap
- Is generally tax-free if the deceased was 60+
Frequently Asked Questions
Does super pass under my Will? Not automatically. Super passes according to your BDBN (if valid), or otherwise at the trustee’s discretion. To bring super into your estate, you must nominate your estate (your “legal personal representative”) — it then passes under your Will.
Can I leave super to my adult children? Yes, but only through your estate (you cannot nominate them directly unless they are financial dependants). When received by financially independent adult children — whether directly from the fund or through the estate — the taxable component is taxed at 17%.
What if my BDBN has expired? An expired (lapsed) BDBN is not binding — the trustee has discretion. Check your BDBN’s expiry date and renew it every 3 years if your fund uses lapsing nominations. Some funds send reminders; many do not.
Can I change my BDBN after separating from my spouse? Yes — you should update your BDBN immediately after any change in relationship status (separation, divorce, new partner). An out-of-date BDBN naming an ex-spouse may result in them receiving your super if you die before updating it.
For advice tailored to your estate planning situation, speak with a licensed financial adviser and an estate planning solicitor. MoneySmart has further information on super death benefits.