Understanding superannuation death benefits


In the event of the death of a superannuation fund member, the super fund must pay a death benefit to an eligible beneficiary, either as a lump sum and/or an income stream, as soon as practical.

A lump sum super fund death benefit may be paid to a superannuation dependent or to the members legal personal representative (i.e. estate). It is important to remember that superannuation doesn’t automatically form part of a deceased person’s estate. The trustee of the super fund must be instructed to pay the benefit to the legal personal representative by the deceased member.

Unfortunately it is all too common for members to die without any nominations in place and this causes delays and unintended consequences.

To achieve the best outcome, it is recommended that all members of superannuation funds complete a binding, non-lapsing binding or reversionary nomination. Provided this is completed correctly, normally the trustee is obliged to follow this instruction.

Superannuation death benefits and eligible dependents

One condition to nominating a beneficiary is that they must be an eligible dependent at time of death. An eligible dependent is as follows:

  • Current spouse (includes de facto and same sex)
  • Child under age 18 of the deceased or their spouse (includes adopted and stepchildren)
  • Child over 18 (financially independent)
  • Person with whom an interdependent relationship existed
  • Financially dependent person at time of death

An interdependent relationship usually means a close personal relationship, living together and providing financial support, domestic support and personal care.

Alternatively, the member can nominate their benefit be paid to the members personal legal representative.

All eligible dependents can nominate to receive their benefit as a lump sum or an income stream EXCEPT for dependents over 18 who are financially dependent. They must take a lump sum.

The tax implications for the recipient of a death benefit from a super fund vary. Basically if you are a dependent as listed above except a child over 18 who is financially dependent, you will receive a super lump sum death benefit tax free.

Superannuation death benefits and financially dependent children

 If you are a financially independent child over 18, then the lump sum benefit is taxed as follows:

Component of Super Benefit                                Tax Applicable

Tax Free                                                                          0%

Taxable (Taxed)                                                             Maximum rate of 15% (plus Medicare levy)

Taxable (Untaxed)                                                         Maximum rate of 30% (plus Medicare levy)

For super dependents who can nominate to receive the super death benefit as an income stream the tax implications are as follows:

Component of Super Benefit                                Tax Applicable

(If deceased or beneficiary is over 60)

Tax Free                                                                          0%

Taxable (Taxed)                                                             0%

Taxable (Untaxed)                                                         Taxed at marginal rate plus Medicare levy with a 10% offset

Component of Super Benefit                                Tax Applicable

(If deceased and beneficiary under 60)

Tax Free                                                                            0%

Taxable (Taxed)                                                               Taxed at marginal rate plus Medicare levy with a 15% offset

Taxable (Untaxed)                                                          Taxed at marginal rate plus Medicare levy

As this article illustrates,  the payment of superannuation death benefits is a complicated process. Without adequate planning, it can be a costly and time – consuming process.

Need more information about superannuation death benefits? Contact  contact your Stratogen Accountant on 07 5474 0711.

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