Death benefits, binding nominations and reversionary pensions explained
What happens to your super when you die, and how to make sure it goes where you want, explained in plain English for SMSF members.
By Tash ·
Your superannuation does not automatically form part of your estate when you die, and it is not covered by your will unless you direct it there. For SMSF members, deciding what happens to your benefit, and documenting it properly, is one of the most important and most overlooked parts of running a fund. This article explains the basics.
Your super is not automatically part of your will
When you die, your super benefit is paid out by the fund as a death benefit. Who receives it is decided according to the fund’s rules and any nomination you have made, not automatically by your will. This surprises many people. Without a valid nomination, the trustee (which in an SMSF is usually the surviving members or a company they control) may have discretion over who receives your benefit, which can lead to disputes, especially in blended families.
Who can receive a death benefit
Super law limits who can receive a death benefit directly. Generally it can be paid to your dependants, which includes your spouse, your children, anyone financially dependent on you, and anyone with whom you had an interdependency relationship, or to your legal personal representative (your estate), to then be distributed under your will. The tax treatment can differ depending on who receives it, particularly for adult children, so it is worth understanding before you decide.
Binding death benefit nominations
A binding death benefit nomination, often shortened to BDBN, is a written direction to the trustee about who should receive your benefit. If it is valid and binding, the trustee must follow it, which removes the discretion and the uncertainty.
A few things matter with a BDBN:
It must meet the requirements in your fund’s trust deed. SMSF deeds vary, so the rules for making a valid nomination depend on your deed.
Some nominations lapse after a period and need to be renewed, while others are non-lapsing, again depending on the deed. Check which type yours is.
It needs to be kept up to date. A nomination made years ago may no longer reflect your wishes after a marriage, divorce, or new child.
Because the rules depend on the deed and the consequences are significant, this is an area where advice is genuinely worth getting.
Reversionary pensions
If you are drawing a pension, another option is to make it reversionary. A reversionary pension is one that automatically continues to be paid to a nominated beneficiary, usually your spouse, when you die, rather than stopping and being paid out. The pension simply reverts to the beneficiary and keeps going.
A reversionary pension can provide certainty and a smooth continuation of income for a surviving spouse. It also interacts with the transfer balance cap: when a pension reverts, the value is credited to the beneficiary’s transfer balance account, but generally not until twelve months after the death, which gives the beneficiary time to arrange their affairs.
Why this matters more in an SMSF
In a large fund, professional trustees administer death benefits routinely. In an SMSF, the surviving trustees handle it, often while grieving, and sometimes with a personal interest in the outcome. Clear, valid, up to date documentation protects your beneficiaries and reduces the risk of a dispute at the worst possible time. It is worth getting your nominations and pension documentation right while everything is straightforward.
The bottom line
Your super does not pass automatically under your will. It is paid as a death benefit to your dependants or your estate, according to your fund’s rules and any nomination you make. A valid binding death benefit nomination removes the uncertainty, and a reversionary pension can continue income to your spouse automatically. Because the rules depend on your trust deed and the stakes are high, get advice and keep your documentation current.
This article is general information for trustees and members. It is not financial, legal or tax advice about your particular situation. Death benefit rules depend on your fund’s trust deed, so consider getting advice from a licensed professional.
Common questions
- Does my super automatically pass under my will?
- No. Your super benefit is paid out by the fund as a death benefit, decided according to the fund's rules and any nomination you have made, not automatically by your will, unless you direct it to your estate.
- Who can receive an SMSF death benefit?
- Generally a death benefit can be paid to your dependants, which includes your spouse, your children, anyone financially dependent on you, and anyone with whom you had an interdependency relationship, or to your legal personal representative to be distributed under your will.
- What is a binding death benefit nomination?
- A binding death benefit nomination, or BDBN, is a written direction to the trustee about who should receive your benefit. If it is valid and binding, the trustee must follow it, which removes the discretion and the uncertainty.
- What is a reversionary pension?
- A reversionary pension is one that automatically continues to be paid to a nominated beneficiary, usually your spouse, when you die, rather than stopping and being paid out. The pension simply reverts to the beneficiary and keeps going.