Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 38

Don’t leave your estate to clean up a super mess

SMSFs have continued to grow in number despite, or perhaps because of, the global financial crisis. People establishing these funds want to take control of their finances and would like that control to extend to who receives the money left behind after they die.

The ability to nominate beneficiaries for superannuation is restricted by the Superannuation Industry (Supervision) Act 1993 (SIS Act) and related legislation and regulations. Many people may not be aware that they cannot validly nominate a friend, a charity or any person who is not a ‘dependant’, or their estate, to receive their superannuation.

Conflicts over inherited superannuation

In our experience, superannuation is increasingly becoming an asset that attracts the attention of disappointed people who expected to be beneficiaries of a substantial member balance.

Such people are dismayed to discover that they may not have been treated the same as their siblings by a parent or, more annoyingly, by a third party professional super fund trustee when it comes to dividing up the super balance of a deceased SMSF member. Often, one of deceased's children, as the executor, steps into the shoes of the SMSF trustee. The bad news for other siblings is that, if there is no valid binding nomination in place, then unless a will directs that adjustment be made for superannuation payments, executors can pay the super to themselves with impunity.

Some will be outraged by this, but the law is fairly settled in this area. Freedom of testation in Australia has for more than a century been restricted by legislation that allows a broad range of people to challenge a will. Ignoring the reality of potential claims can put the person managing an estate under terrible stress and financial pressure as they are liable to be sued by disappointed parties.

The only way to have certainty with superannuation is to ensure that binding nominations are in place and up to date; they usually lapse every three years.

Regulation 6.17A of the SIS Regulations sets out in detail the requirements that must be included in the notice for non-SMSFs, including the fact that this must be in writing and signed and dated by the member in the presence of two independent adult witnesses. Wills and estate lawyers are continually amazed by how many unwitnessed or undated nominations they see. People assume their wishes are clear, but often they are invalid.

SMSFs provide flexibility and certainty, but trustees should realise that SMSFs come with added responsibilities compared with other types of superannuation. In fact, the terms ‘self-managed’ and ‘DIY’ are disingenuous. Professional support is usually essential.

While nominations need to be updated in writing every three years, there are also good tax reasons for checking them annually. For instance, if a nominated child beneficiary turns 18 and is no longer financially dependent, 16.5% tax will apply to any taxable benefit they receive.

Who makes the determination?

If there is no binding nomination that is valid, then the trustees of super funds make the beneficiary determination. However they need to follow due process. When we see disputes, allegations are often made around the trustees making a determination without following due process, in terms of notices, quorums for meetings, analysis of reasons given, resolutions, etc.

We are seeing instances of trustees of public offer funds paying super out to legal personal representatives of estates that may be the subject of a legal challenge, or to de facto spouses where it seems clear that these relationships had ended before the time of death of the members concerned. Decisions in such situations can be surprising and disappointing, depending on your position.

In most cases, particularly if there is a dispute about who should apply to be the legal personal representative (that is, a spouse versus a de facto spouse, or one child of the deceased versus another), it would be prudent to be clear who the legal personal representative is. Some cases show that there has been confusion as to whether a death benefit is paid to a person in their capacity as legal personal representative or in a personal capacity.

What is a valid binding death benefit nomination?

People find the tax environment of SMSFs attractive. However, they are less excited by the fact that there are a limited number of people to whom they can pay their superannuation on their death. In particular, it is usual for them to arrange to pay a pension or a lump sum to a spouse but, just as commonly, they may want to impose controls over that spouse's use of the money, with a view to it being available for their children when their spouse passes away. Superannuation is an excellent asset accumulation vehicle but it is not necessarily a ready asset transfer vehicle.

Regulation 6.22 of SIS Regulations 1994 states that benefits must be paid to either or both of the following:

(a)           the member's legal personal representative, or

(b)          one or more of the member's dependants.

Regulation 6.17A sets out all of the requirements for paying out benefits on or after the death of a member. Cases reveal that compliance is mandatory and strictly monitored. Technical breaches will not be smoothed over and nominations with such breaches will be invalid.

Common errors with the nomination are that they are undated, the member has signed their date of birth as the date at the time of signing, or witnesses have not signed at the same time, or at all.  We also see a number of trust deeds that predate 1999 and they do not allow for binding nominations. This means that nominations are not possible in that fund.

Adult children rarely satisfy the dependancy rules. Accordingly, a rule of thumb when preparing binding nominations may be that proposed beneficiaries need to be under 15 years of age where there is the usual three year nomination period, as if they are over 15 years, it is possible that they would become a non-dependant (that is, already over 18) at the time of death while the nomination is still valid. 

Don’t leave your estate in confusion

Judicial authorities are demanding strict compliance with the regulations. If they are not followed correctly in the first instance, there is usually no opportunity to ‘fix’ any problems that may arise. Superannuation nominations are quasi-legal documents but are often not drawn up by lawyers, or executed in front them. We suggest that a senior adviser supervise every step of a nomination from consideration of the different ways to protect beneficiaries to the execution of a document that is designed to achieve the important task of distributing deceased members' superannuation wealth in accordance with their wishes. Beneficiary nomination for superannuation is a mine field that can be traversed safely and profitably.

Donal Griffin is a Principal Of Legacy Law, a legal firm specialising in protecting family assets. 



Leave a Comment:



Limits to a will’s power over an SMSF

Providing financial assistance to parents

Planning to make your money live forever


Most viewed in recent weeks

Is it better to rent or own a home under the age pension?

With 62% of Australians aged 65 and over relying at least partially on the age pension, are they better off owning their home or renting? There is an extra pension asset allowance for those not owning a home.

Too many retirees miss out on this valuable super fund benefit

With 700 Australians retiring every day, retirement income solutions are more important than ever. Why do millions of retirees eligible for a more tax-efficient pension account hold money in accumulation?

Is the fossil fuel narrative simply too convenient?

A fund manager argues it is immoral to deny poor countries access to relatively cheap energy from fossil fuels. Wealthy countries must recognise the transition is a multi-decade challenge and continue to invest.

Reece Birtles on selecting stocks for income in retirement

Equity investing comes with volatility that makes many retirees uncomfortable. A focus on income which is less volatile than share prices, and quality companies delivering robust earnings, offers more reassurance.

Welcome to Firstlinks Election Edition 458

At around 10.30pm on Saturday night, Scott Morrison called Anthony Albanese to concede defeat in the 2022 election. As voting continued the next day, it became likely that Labor would reach the magic number of 76 seats to form a majority government.   

  • 19 May 2022

Comparing generations and the nine dimensions of our well-being

Using the nine dimensions of well-being used by the OECD, and dividing Australians into Baby Boomers, Generation Xers or Millennials, it is surprisingly easy to identify the winners and losers for most dimensions.

Latest Updates

SMSF strategies

30 years on, five charts show SMSF progress

On 1 July 1992, the Superannuation Guarantee created mandatory 3% contributions into super for employees. SMSFs were an after-thought but they are now the second-largest segment. How have they changed?

Investment strategies

Anton in 2006 v 2022, it's deja vu (all over again)

What was bothering markets in 2006? Try the end of cheap money, bond yields rising, high energy prices and record high commodity prices feeding inflation. Who says these are 'unprecedented' times? It's 2006 v 2022.


Tips and traps: a final check for your tax return this year

The end of the 2022 financial year is fast approaching and there are choices available to ensure you pay the right amount of tax. Watch for some pandemic-related changes worth understanding.

Financial planning

Is it better to rent or own a home under the age pension?

With 62% of Australians aged 65 and over relying at least partially on the age pension, are they better off owning their home or renting? There is an extra pension asset allowance for those not owning a home.


Listed infrastructure: finding a port in a storm of rising prices

Given the current environment it’s easy to wonder if there are any safe ports in the investment storm. Investments in infrastructure assets show their worth in such times.

Financial planning

Power of attorney: six things you need to know

Whether you are appointing an attorney or have been appointed as an attorney, the full extent of this legal framework should be understood as more people will need to act in this capacity in future.

Interest rates

Rising interest rates and the impact on banks

One of the major questions confronting investors is the portfolio weighting towards Australian banks in an environment of rising rates. Do the recent price falls represent value or are too many bad debts coming?



© 2022 Morningstar, Inc. All rights reserved.

The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. Any general advice or ‘regulated financial advice’ under New Zealand law has been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892) and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. For more information refer to our Financial Services Guide (AU) and Financial Advice Provider Disclosure Statement (NZ). You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.

Website Development by Master Publisher.