Superannuation death benefits provide financial support to your family once you pass away. These benefits include the balance of your super account, including any life insurance held within your superannuation fund. Unlike other assets, superannuation death benefits may not form part of your estate unless directed by a binding death benefit nomination.
Who Can Receive Superannuation Death Benefits?
Death benefits can be paid to:
- Dependents (per Superannuation Law): Spouse (including de facto), children, or other financial dependents.
- Legal Personal Representatives: If no dependents, the benefit may be paid to your estate.
The superannuation fund trustee has discretion in determining who qualifies as a dependent.
Types of Dependent:
There are two different ‘categories’ of dependent:
- Superannuation Law Dependent
- Tax Law Dependent
In order to receive a superannuation death benefit, you must be a dependent per superannuation law.
In order to receive a tax concession on a superannuation death benefit, you must be a dependent per superannuation law AND a dependent tax law.
How Are Superannuation Death Benefits Paid?
Benefits are usually paid as:
- Lump Sum: A one-time payment to the nominated beneficiary.
- Income Stream: An ongoing pension, typically for a spouse or dependent.
Tax Implications:
Death benefits paid to tax law dependents are generally tax-free. Non-tax law dependents may be subject to tax, up to 15% plus Medicare levy.
Binding vs Non-Binding Death Benefit Nominations
- Binding Nomination: Legally directs the trustee to pay the benefit to specified beneficiaries. Depending on your superannuation fund rules, these may automatically lapse and need to be renewed.
- Non-Binding Nomination: The trustee considers your wishes but isn’t required to follow them.
Where Are Superannuation Death Benefits Paid?
The trustee of your superannuation fund has a duty to distribute your death benefit according to the superannuation fund rules and any binding death benefit nominations you have in place.
If no binding death benefit nomination exists, the trustee will use their discretion which might include considering non-binding death benefit nominations.
Ultimately, if you wish to direct your superannuation death benefit in a specific way, you must establish a binding death benefit nomination.
Superannuation death benefits play an important role in estate planning and require proper consideration.
By understanding the basics of how these benefits are distributed, the types of beneficiaries who can receive them, and the tax implications involved, you can make informed decisions about your superannuation and ensure your wishes are followed. It’s always a good idea to seek professional advice to ensure your superannuation is structured according to your needs.
At Walshs, we’re here to help. If you have any questions regarding superannuation, get in touch today on 07 3221 5677, or book a meeting HERE.
Article by Sam Myers, Walshs SMSF Division Manager
