Will your super benefits be paid to your loved ones after death?

What happens to your superannuation balance after death?

A superannuation death benefit is a payment made to a dependent beneficiary of a deceased estate after a superannuation member has passed away.

When a member passes away, their assets and liabilities are called the “estate of the deceased”.

Importantly, superannuation benefits do not automatically form part of a deceased’s estate.

A member (before their death) can elect that their super balance will be treated in the following manner after their death;

1. paid to their estate upon death, and then there “will” determine the beneficiaries (desired family member to receive the super benefits), or

2. a direct payment can be made to a “superannuation dependant”. This must be a spouse, child, or someone with whom there was an interdependent relationship with the deceased before their death.

Next are the tax considerations. The tax treatment of super death benefit payments differs depending on whether the recipient is a “tax dependant”.

Tax dependants are:

• deceased’s spouse (including an ex-spouse),

• children under 18,

• an interdependent person, or a financial dependant.

These dependants will receive the superannuation death benefit tax-free.

Alternatively, a non-dependant beneficiary receiving a super death benefit will incur some tax:

1. If paid to a surviving spouse: a spouse nominated as the beneficiary of the super fund can receive the remaining balance as a tax-free lump sum.

2. If paid to adult children: aged over 18 (or under 25 and still financially dependant), it must be paid out of superannuation as a lump sum – it can’t be paid as a pension (income stream). Super death benefits paid to adult children are taxed at 15%.

Many of the comments in this publication are general in nature and we recommend that you seek professional advice to independently verify if the above applies to your circumstances.

Please contact our superannuation tax specialist Harris Nalbantidis on 03 9863 6997 to ensure that your super benefits are allocated to your loved ones in the event of unforeseen circumstances