Superannuation death benefits can be a significant financial asset, often including life insurance coverage. However, many people are unaware of how these benefits are managed after someone’s death.

If the deceased has not made a valid Binding Death Benefit Nomination, the superannuation fund takes on the responsibility of deciding how the benefits will be distributed.

In such cases, the trustee has the discretion to decide whether the death benefits go to the deceased’s dependants or their estate.

Key factors in determining beneficiaries

Several factors guide the superannuation fund trustee’s decision in distributing death benefits.

• Identification of dependants: This includes spouses, children, or anyone financially dependent on the deceased.

• Wishes of the deceased: Non-binding nominations or instructions in the deceased’s Will can provide guidance to the fund.

• Financial dependence: Dependants who were financially reliant on the deceased, such as a spouse or child, are often prioritised.

• Past and future events: The trustee considers the history of the financial relationship between the deceased and their dependants, as well as future financial needs.

• Third-party support: Assistance from third parties, such as carers, may also be considered in the decision.

• Relationship circumstances: The fund assesses the closeness of the relationship and the emotional and financial impact on dependants.

• Availability of independent income: Beneficiaries with their own financial means may not be prioritised over those in greater need.

• Financial disparities: If there are significant differences in the financial circumstances of potential beneficiaries, those in greater need may receive more.

The importance of estate planning to avoid superannuation disputes

One of the most important steps you can take to ensure your superannuation death benefits are paid according to your wishes is to have a solid estate plan in place before you pass away.

While estate planning may seem like a daunting task, it is an essential part of ensuring that your loved ones are cared for financially and that your superannuation benefits are distributed in the manner you intend.

Effective estate planning can help avoid confusion and disputes over your death benefits. Without clear instructions, family members may disagree, leading to delays and stress during an already difficult time.

A well-structured estate plan may include the following key components:

1. Binding Death Benefit Nominations:

A Binding Death Benefit Nomination allows you to specify exactly who will receive your superannuation death benefits. This ensures that the trustee of the superannuation fund will distribute the benefits as you have instructed.   

It is crucial to review these nominations regularly to ensure they align with your current life circumstances, such as changes in family structure, relationships, or financial obligations.

2. Clear instructions in your Will:

Your Will should also include clear instructions about the distribution of your superannuation death benefits, particularly if you wish these benefits to form part of your estate.

The Will should also address any potential complications, such as how to divide assets between children or provide ongoing support for a surviving spouse.

3. Consideration of your beneficiaries’ financial needs:

When creating an estate plan, consider the financial needs of your dependants. For instance, a minor child, a spouse with no income, or someone who relies on you for long-term care should be prioritised in your estate plan.

This can involve setting up trusts or allocating funds to life insurance policies that provide additional financial security for your dependants.

What happens if there are disputes over superannuation death benefits?

If a dispute arises over the distribution of superannuation death benefits, the individual who disagrees with the fund’s decision can lodge a formal complaint.

The first step is to use the superannuation fund’s internal dispute resolution process.

If the complaint is not resolved satisfactorily at this stage, it can be escalated to the Australian Financial Complaints Authority (AFCA), which provides independent dispute resolution services.

I want to make a claim – what should I keep in mind?

If you decide to make a superannuation claim, you should make sure that you:

1. organise and double-check that the supporting information you provide is correct and current;

2. consider potential claims from other parties; and

3. make yourself aware of the time limits which may apply to object to any decision of the trustee.

To ensure that your case is handled properly, seek professional advice early in the process.

Get advice

The death of a loved one is an emotionally challenging time. Having a clear and effective estate plan in place, including provisions for your superannuation death benefits, can prevent unnecessary stress and confusion for your family.

By organising your affairs and making binding nominations, you can ensure that your wishes are honoured and your loved ones are financially supported.

If you need help with lodging a superannuation death benefit claim or are in the process of ensuring your estate plan is in order, please contact us for assistance.