What happens to my Super when I Die?

What happens to my Super when I Die?
March 15, 2021 |
Paul Horn

Superannuation benefits do not automatically form part of your estate upon your death. Consequently, your Will does not govern how your super is paid upon death, unless it is actually paid to your estate. 

Who decides how Superannuation benefits are paid? 

Any decision regarding the distribution of your superannuation death benefits is determined by the trustee(s) of the fund, subject to the relevant superannuation law, the trust deed and any valid binding death benefit nomination you make. 

valid binding death benefit nomination should generally be: 

  • In writing 
  • Nominating eligible person(s) 
  • Signed and dated by you in the presence of two witnesses, who are over age 18 and are not mentioned in the notice 
  • Containing a declaration signed and dated by the witnesses stating that the notice was signed by you when they were present. 

Non-binding nomination 

A non-binding nomination provides guidance, but not direction, to the trustee(s). 

Lapsing versus non-lapsing nomination 

A lapsing nomination is only valid for a specific duration and therefore needs to be reviewed and renewed periodically. A non-lapsing nomination is generally valid until a new nomination is received or the nomination is revoked. 

Trustee discretion or invalid nomination 

If you have not provided a direction for payment of death benefits, the trustees generally have discretion to decide to whom and in what form your benefits are to be paid. In some cases, the deed may require the trustees to obtain consent from your legal personal representative, usually the executor of your estate. Whilst non-binding instructions may provide the trustee with some direction, the ultimate outcome may not be as intended. 

Who can receive death benefits? 

Generally, your death benefits can only be paid to someone who is: 

  • Your superannuation dependant 
  • The legal personal representative of your estate, to be dealt with in accordance with your Will, or  
  • As a combination of the above.  

Superannuation Dependants 

A Superannuation dependant includes: 

  • Your spouse (including de facto and same sex couples)
  • Your Children of any age 
  • People financially dependent on you at the time of your death, and 
  • People who are in an interdependency relationship with you at the time of your death. 

An interdependency relationship exists between two people where: 

  • They have a close personal relationship with you
  • The live with you, even if not related, and 
  • One or each of them provides the other with financial and domestic support and personal care. 

How are death benefits taxed? 

Tax on your death benefit depends on how it is paid and whether the recipient is classified as a dependant under the Tax Act, commonly referred to as a “tax dependant”. In the case of death benefit pensions, tax can depend on the age of the beneficiary and your age at the time of death. 

Tax dependants include: 

  • Your spouse or former spouse (including de facto and same sex couples) 
  • Your child under 18 years of age (including adopted, step, ex-nuptial) 
  • Any other person who was an ‘ordinary’ dependant of the deceased or  
  • Any other person with whom you had an interdependency relationship just before your death. 

Adult children 

Whilst adult children are superannuation dependants, generally they are not tax dependants. Consequently, superannuation death benefits they receive may be subject to tax (depending on the tax components of the superannuation death benefit). 

Death benefits paid as a lump sum 

The table below summarises the tax on lump sums paid directly by the fund to a superannuation dependant. 

Tax components Paid to a tax dependant Paid to a non-tax dependant 
Tax fee component Nil Nil 
Taxable component Nil 15% + Medicare levy 

Where beneficiaries receive a superannuation death benefit via your estate, the tax treatment is the same, except Medicare levy is not applied. 

Death benefits paid as a pension 

Where your benefit is paid as a pension, known generally as a “death benefit pension”, the tax treatment is: 

Tax components Either the deceased or the dependant aged 60 or over Both deceased and the dependant aged under 60 
Tax free component Nil Nil 
Taxable component Nil Treated as normal assessable income and taxed at marginal tax rates, but with a 15% tax offset 

Seek specialist independent advice 

A person’s superannuation entitlements are becoming one of the most valuable, if not the most valuable, asset of an individual. Considering superannuation does not form part of a person’s estate and cannot be directly dealt with under a Will, care and consideration should be given to how and to whom this asset is transferred. In addition to the potential legal challenges that can accompany a superannuation death benefit, there are also the tax consequences that may erode a beneficiary’s entitlement. To this end, specialist superannuation and tax advice should be sought from appropriately qualified advisors who can demonstrate a specialised level of expertise. 

Paul Horn

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