What happens to your super when you die?

Most superannuation funds will pay a sizeable death benefit if you die. Usually your super, which includes your account balance and any superannuation death benefits, will be paid to your dependents. This death benefit might provide a big difference to family members who were dependent upon you. This might be your spouse or children but could also be other family members or friends.

Who is a tax dependent?

  1. A current spouse, including de facto partner
  2. Any children of the deceased who are under the age of 18
  3. Any other financial dependants

How can super death benefits be paid?

Option 1: Paying super death benefits as a lump sum

  • Can be paid to a tax dependant directly or via your legal personal representative (LPR)
    • Not taxed when paid to a tax dependant
    • Taxed when paid to a non-tax dependant
      • Tax is on both the taxed and/or untaxed element
      • Taxed element is subjected to a maximum tax rate of 15% plus Medicare levy
      • Untaxed element is subjected to a maximum tax rate of 30% plus Medicare levy

Option 2: Paying super death benefits as an income stream

  • Tax treatment depends on the age you pass away and/or the beneficiary’s age including the tax components of the income stream
  • Example:
    • If you or the recipient of your death benefits are aged 60 or over at the time of your passing, and super is paid from a taxed super, it may be paid tax-free.
    • If you are both under age 60 at the time of your passing, the taxable portion of the income stream will be counted as assessable income for your beneficiary but they will be eligible to a tax offset of 15%. When the beneficiary turns age 60, the income stream will become tax-free.
  • Different rules apply for income streams with untaxed elements.
  • Important to note: This option is not available to beneficiaries who are children over the age of 25 (other than those with a permanent disability).

What to consider

Beneficiary nominations checklist:

  1. Does your super fund provide a beneficiary option that suits your situation?
  2. Are the people you are nominating eligible beneficiaries?
  3. Make sure your Will is up to date if you are nominating your Estate / LPR.
  4. Ensure your death benefit nominations are binding.
  5. If your nominations are binding lapsing, ensure you review them regularly.

We can help

Superannuation is a complex area. Our team are knowledgable and experienced in providing advice that will best suit your personal circumstances, family dynamics and wishes. Please contact us if you would like guidance to ensure you have peace of mind that your family will be taken care of.