Who gets your super when you die? It’s not as simple as you may think

We often consider that superannuation is ‘ours’. It’s our money that we contribute to our long-term retirement savings.

But there are rules and regulations that are imposed in the superannuation environment which have to be carefully considered.

For example, unless certain circumstances arise, you are not able to simply withdraw your superannuation entitlements.

Death is one circumstance where superannuation must be paid out of the fund in which it was held – but it cannot be paid to just anyone.

Who is eligible to receive your super?

When a member of a superannuation fund dies, they receive a ‘death benefit’. Broadly speaking, a death benefit is the sum of the person’s member balance (made up of all of their contributions and earnings on those contributions) and any life insurance that they hold in the fund. That death benefit can only be paid to a limited class of recipients (referred to in the superannuation legislation as a ‘dependant’):

  1. The member’s spouse or de facto partner;
  2. The member’s child; and
  3. Someone financially dependent on the member, or in an inter-dependency relationship with the member.

In addition to the above ‘dependants’, the member’s legal personal representative is also eligible to receive a death benefit (which means it forms part of their estate). The existence of this last category is important – a person’s Will does not automatically govern where their death benefit will be paid. It is only if the death benefit is paid to the member’s legal personal representative that their Will (if any) will dictate how the death benefit is then paid. If there is no Will, then death benefits paid to the estate will be governed by the laws of intestacy.

The tax treatment of the payment of death benefits to each of these categories of recipients is a topic for another article.

So, how do we know where the superannuation will be paid?

The default position for most superannuation funds is that the trustee will have discretion to choose who will receive the death benefit amongst the above class of eligible recipients.

It is possible (subject to the rules of the relevant superannuation fund) for a member to advise the trustee of their preference of recipient, or even elevate that to a binding nomination of the recipient.

A recent case…

For example, in the case of Wan v BT Funds Management Limited [2022] FCA 302 the full Federal Court heard the following details:

  • The deceased left a Will distributing his estate in equal shares between Ms Wan (who the deceased referred to as his ‘friend’ in his Will), the deceased’s former spouse, and the son of the former spouse.
  • The deceased made a non-binding nomination with his superannuation fund, sending his death benefit to his legal personal representative (i.e. to his estate).
  • The deceased did not make any binding death benefit nomination, therefore the trustee has discretion as to whom to pay the deceased’s death benefit, and determined it was appropriate to follow the deceased’s non-binding nomination and resolved to pay the death benefit to the deceased’s estate.
  • Ms Wan issued a complaint to AFCA claiming that the deceased’s death benefit should have been paid to her.
  • AFCA decided that there was no evidence provided to indicate that Ms Wan was a de facto spouse of the deceased, nor was she in an interdependency relationship with him – despite staying at his home more frequently as his health deteriorated and leaving personal items at his residence. AFCA considered the deceased’s description of Ms Wan as his ‘friend’ in the terms of his Will in coming to its decision.
  • Ms Wan then appealed AFCA’s decision on the basis that AFCA had misinterpreted the meaning of ‘dependant’ under the superannuation legislation, and applied a limited definition without considering any personal and emotional dependency. The appeal was dismissed after the Court determined there was no evidence in relation to financial support to or from the deceased, or that Ms Wan and the deceased had a common residence.
  • Ms Wan further appealed, submitting that AFCA made an error in its conclusion that Ms Wan was neither a de facto spouse or in an interdependency relationship with the deceased. She contended she was a ‘dependant’ under a wider interpretation of the term, with a focus on her close personal relationship and provision of emotional support to the deceased. The appeal was again dismissed with the Court concluding that AFCA “conducted its assessment on the basis of the claim made and within the parameters which delineated that claim”.
  • The Court indicated that while emotional and personal support may be a relevant factor of interdependency, it is not in itself a category of ‘dependant’ for superannuation purposes.

What do we learn from this case?

There are a few key takeaways from this case to keep in mind:

  1. If the deceased had made a valid binding death benefit nomination – as opposed to a non-binding nomination – then (again, subject to the terms of the fund’s rules) the trustee would have been bound to follow the deceased’s direction.
  2. ‘Dependency’ for the purposes of superannuation law is, at least for now, primarily a test of financial dependency and not a broader emotional or personal dependency. While a ‘close personal relationship’ and ‘personal care’ are some aspects of the legislated definition for ‘interdependency’, the definition also requires one or each of the persons ‘providing financial support’.
  3. Consideration needs to be given in an estate planning context in respect of who is intended to benefit from the death benefit – i.e. do they fall within one of the above categories, or is it necessary to send the superannuation to the estate and what are the implications (tax and otherwise) of doing so?

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For expert advice or guidance regarding Estate Planning and superannuation funds, please do not hesitate to contact us.

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