A Guide to Beneficiary Nominations for Australian Expats: What Happens to your Super if you Pass Away Overseas

As an Australian expat living and working abroad, your financial affairs often become more complex than they were back home. One crucial area that is frequently overlooked is what happens to your super if you pass away overseas. Superannuation may not form part of your estate by default, so unless you make the right beneficiary nomination, your super fund trustee will determine who receives your superannuation death benefit.

Understanding the different types of nominations, who qualifies as a beneficiary, and how tax applies to death benefits can help ensure your wishes are carried out and your loved ones are looked after. In this guide, we’ll break it all down for you.

What Happens to Your Super if You Pass Away Overseas?

If you pass away while living overseas, your super doesn’t automatically go to your next of kin or form part of your Will. Instead, your super fund pays your super death benefit, which includes your super account balance and any insurance component, to a beneficiary, either as a lump sum or income stream. The distribution depends heavily on whether you’ve made a valid nomination and the type of nomination you’ve chosen.

The process can be more complicated when you’re living abroad, especially when beneficiaries may also be non-residents or if no nomination has been made. That’s why it's essential to understand your options and make sure your nomination is up to date.

Types of Superannuation Beneficiary Nominations

There are three main types of superannuation beneficiary nominations in Australia:

1. Non-binding Nomination

A non-binding nomination, also known as a preferred nomination, acts more like a suggestion to the trustee of your super fund. The trustee will consider your wishes, but ultimately, they will decide who receives the benefit, taking into account your relationships at the time of your death.

It may be suitable if you expect your family or financial situation to change and prefer the trustee to have discretion in distributing your benefit. From a financial planning standpoint, it is generally not advisable, as this option offers less certainty at the time of your passing.

2. Binding Nomination

A binding nomination is a written instruction to your super fund on a designated form that legally requires the trustee to pay your death benefit to the person or people you nominate. The trustee is required to adhere to the instruction as long as:

• The nomination is valid;

• The nominated person is an eligible beneficiary (discussed next);

• The nomination has not expired (many binding nominations lapse every three years unless renewed).

This gives you certainty over who will receive your super, which is particularly important if you're concerned about potential disputes or if you have complex family circumstances.

3. Reversionary Nomination (for Account-Based Pensions)

If you are receiving an account-based pension, you can nominate a reversionary beneficiary. This means your pension continues to be paid to your nominated dependent after your death instead of ending. This is often used by retirees who want to ensure their spouse or partner continues to receive income. It also allows your superannuation benefits to remain in the tax-effective super system, rather than being paid out as a lump sum.

Who Can You Nominate?

Under the Superannuation Industry (Supervision) Act 1993 (SIS Act), your super death benefit can only be paid to a valid beneficiary. These include:

• Your spouse or de facto partner;

• Your children of any age (including adopted or stepchildren);

• A person in an interdependency relationship with you;

• Your legal personal representative (LPR), usually the executor of your estate.

If your nomination lists someone outside these categories, it will be deemed invalid, and the trustee will use their discretion to determine a valid beneficiary.

If you would like to leave your super to someone who is not a dependent under superannuation law, you can make a binding death benefit nomination to have the payment made to your legal personal representative. This will ensure your super is distributed according to your Will.

Tax Dependents vs Non-Tax Dependents

Superannuation law sets out who a death benefit is payable to, while taxation law sets out how a death benefit is taxed. Just because someone is a valid beneficiary under super law does not mean they are automatically considered a tax dependent under tax law. The tax treatment of a death benefit depends on the recipient’s relationship to the deceased.

Tax Dependents (no tax payable on super death benefits):

• Spouse or former spouse;

• Children under 18;

• Interdependent persons;

• Financial dependents.

Non-Tax Dependents (tax may apply):

• Adult children who were not financially dependent;

• Siblings, friends, or other extended family members.

If your death benefit is paid to a non-tax dependent, they may be taxed on the taxable component of the benefit.

Tax Rates for Non-Tax Dependents:

• Taxed element of the taxable component: 15% plus Medicare levy (2%);

• Untaxed element (typically from untaxed super funds): 30% plus Medicare levy (2%).

Key Considerations for Australian Expats

Living overseas adds an extra layer of complexity to managing your super nominations. Here are a few tips to keep in mind:

• Review your nomination every couple of years or when your circumstances change;

• Ensure your nomination is valid and that your beneficiary meets the SIS definition;

• Consider the tax consequences for your beneficiaries, especially if they are adult children or not financially dependent on you.

Financial Planning Opportunities

A qualified financial adviser can help Australian expats significantly reduce potential tax liabilities and ensure their superannuation is passed on effectively. Below are some strategic opportunities worth exploring:

1. Re-contribution Strategy

A re-contribution strategy involves withdrawing some or all of your super (usually after retirement or when you meet a condition of release) and then re-contributing it back into your super account as a non-concessional contribution. This can help:

• Convert the taxable component of your super into a tax-free component;

• Reduce the tax payable by non-tax dependent beneficiaries, such as adult children, if they inherit your super.

While this strategy does not eliminate tax completely, it can significantly reduce it. It's particularly powerful for those with large super balances and clear intentions to leave superannuation to their children or other non-tax dependents.

2. Estate Planning Integration

An adviser can help integrate your superannuation planning into your broader estate plan. This may involve deciding whether to nominate your legal personal representative and distribute super via your Will or nominating a valid nomination outside of the Will.

3. Strategic Use of Reversionary Pensions

If you’re in retirement and drawing a pension, nominating a spouse as a reversionary beneficiary can avoid the need for a lump sum death benefit payment and help maintain the income stream in a tax-effective manner. This can also simplify administration and provide continuity of income to your surviving partner.

4. Regular Review of Nominations and Fund Rules

Super fund rules differ, and not all funds offer the same nomination types. An adviser can ensure that:

• Your fund offers binding or reversionary nominations where appropriate;

• Your nominations remain valid and aligned with your goals;

• You stay informed about changes in superannuation legislation that may affect expats.

Conclusion

Superannuation is a significant asset, and planning for what happens to your super if you pass away overseas is essential, especially as an Expat. Making the right beneficiary nomination ensures your money goes to the people you care about, with minimal tax and delay.

Working with an Expat Financial Adviser can unlock strategies that not only protect your wealth but optimise how it is passed on. If you're an Australian expat with superannuation back home, now is the time to review your arrangements and take control of your legacy.

Runway Wealth Management is the trusted Financial Adviser to the Australian Expat community. Our tailored advice is backed by expertise, education and experience, which allows us to be at the forefront of Australian Expat Financial Planning.

If you would like to speak to one of our Expat Financial Advisers about this blog or if you have other queries, we would be more than happy to speak with you. Feel free to send us an enquiry through the ‘Contact Us’ tab provided in the below link:

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General Advice Disclaimer: The information contained herein is of a general nature only and does not constitute personal advice. You should not act on any recommendation without considering your personal needs, circumstances, and objectives. We recommend you obtain professional financial advice specific to your circumstances.