Why Your Will Doesn’t Control Your Super: Protecting Your Legacy in 2026

For many Australians, superannuation represents their largest asset outside the family home. Yet, a dangerous misconception persists: the belief that a Will automatically dictates how these funds are distributed upon death. In reality, superannuation is a 'non-estate' asset. Unless specific legal steps are taken, your superannuation trustee—and potentially the Australian Financial Complaints Authority (AFCA)—may have the final say on who receives your retirement savings.

The Trustee Discretion Trap

Because superannuation is held in a trust, the trustee is generally responsible for deciding how death benefits are paid. In the absence of a valid Binding Death Benefit Nomination (BDBN), the trustee typically exercises discretion to distribute funds to 'legal personal representatives' or 'dependants,' such as spouses and children. However, this discretion is not absolute and is frequently subject to challenge.

Recent AFCA determinations and court rulings, such as the principles discussed in cases like 'Brine v Carter', continue to highlight that without a binding nomination, your superannuation could be subject to trustee discretion and AFCA review [1]. In blended family scenarios, this often leads to protracted disputes. AFCA has the power to overturn a trustee's decision if it determines the distribution was not 'fair and reasonable' in the circumstances, potentially overriding the deceased's informal wishes or even the provisions of their Will.

Division 296: A New Liquidity Challenge

Compounding the complexity of estate planning is the Division 296 tax, which commenced on 1 July 2025 [2]. This legislation introduces an additional 15% tax on 'earnings' for individuals with a Total Superannuation Balance (TSB) exceeding $3 million. This brings the effective tax rate on earnings above this threshold to 30%.

A critical feature of Division 296 is that it taxes 'unrealised' capital gains—the increase in the value of assets even if they have not been sold [2]. For estate planning, this creates significant liquidity risks. Investors with balances approaching the $3 million threshold must review their structures to ensure their estate remains liquid enough to settle these potential liabilities, as the tax is assessed personally against the member. Unlike previous tax reforms, such as the 2017 Transfer Balance Cap changes, there is no legislated cost-base reset for assets affected by Division 296 [3].

ASIC Intensifies Scrutiny on Death Benefits

The regulatory environment has shifted sharply toward protecting beneficiaries from administrative delays. ASIC's 2024 review (REP 791) highlighted significant issues with how funds handle death benefit claims and a general lack of consumer awareness regarding nominations [4]. The report found that many trustees struggled with internal dispute resolution (IDR) timeframes, leaving grieving families in financial limbo.

Furthermore, ASIC's enforcement action against Cbus (Media Release 24-251MR) for systemic delays in death benefit payouts underscores the regulator's intensified scrutiny of the sector [5]. ASIC alleges that failures in claims processing caused significant distress to beneficiaries. For investors, this highlights the importance of having 'technically perfect' documentation to minimize the risk of a claim being stalled in a fund's administrative backlog.

Securing Your Legacy: Practical Steps

To ensure your superannuation reaches your intended beneficiaries without unnecessary delay or tax leakage, consider the following technical compliance steps:

• Implement a 'Non-Lapsing' BDBN: Most standard BDBNs expire every three years. Ensure your fund allows for non-lapsing nominations to avoid the risk of the document becoming invalid due to an administrative oversight.
• Verify 'Dependant' Status: Under the Superannuation Industry (Supervision) Act 1993, you can only nominate a spouse, child, person in an interdependency relationship, or a financial dependant. Nominating a sibling or parent who does not meet these criteria will likely render the BDBN invalid.
• Address the $3 Million Cap: If your balance exceeds $3 million, consult with a tax professional regarding the liquidity of your super fund. High-value, illiquid assets (like direct property) may pose challenges when settling Division 296 liabilities.
• Coordinate with your Will: While the Will doesn't control the super, it should be drafted in contemplation of the super distribution. For example, if your super goes to a spouse, your Will might allocate other estate assets to children to ensure an equitable total distribution.

In the current regulatory climate, passive estate planning is no longer viable. The combination of Division 296 tax liabilities and increased AFCA oversight means that superannuation requires as much—if not more—attention than the Will itself.

Sources

[1] AFCA, Approach to superannuation death benefits: https://www.afca.org.au/about-afca/publications/approach-to-superannuation-death-benefits
[2] ATO, Better Targeted Superannuation Concessions (Division 296): https://www.ato.gov.au/about-ato/new-legislation/in-detail/superannuation/better-targeted-superannuation-concessions
[3] Parliament of Australia, Treasury Laws Amendment (Better Targeted Superannuation Concessions and Other Measures) Bill 2023: https://www.aph.gov.au/Parliamentary_Business/Bills_Legislation/Bills_Search_Results/Result?bId=r7106
[4] ASIC, REP 791 Superannuation death benefits: https://asic.gov.au/regulatory-resources/find-a-document/reports/rep-791-superannuation-death-benefits-compliance-with-internal-dispute-resolution-requirements/
[5] ASIC, 24-251MR ASIC sues Cbus: https://asic.gov.au/about-asic/news-centre/find-a-media-release/2024-releases/24-251mr-asic-sues-cbus-alleging-systemic-claims-handling-failures/
[6] ATO, Super guarantee percentage: https://www.ato.gov.au/tax-rates-and-codes/key-superannuation-rates-and-thresholds/super-guarantee

This article contains general educational information only and does not constitute personal financial, legal, or tax advice. Please consult a licensed professional before making any financial decisions.