Super Death Benefits: What Happens to Your Super When You Die
Your super doesn't automatically go to your estate. Understanding death benefit nominations, who can receive super tax-free, and the tax implications can save your beneficiaries thousands.
Who Can Receive Your Super?
Super death benefits can only be paid to "dependants" under super law:
- Spouse: Including de facto and same-sex partners
- Children: Of any age (but tax treatment varies)
- Financial dependant: Someone financially dependent on you
- Interdependency relationship: Close personal relationship with mutual support
If you have no dependants, your super goes to your estate and is distributed according to your will.
Types of Death Benefit Nominations
Binding Death Benefit Nomination
The trustee must follow your instructions. Usually valid for 3 years (check your fund). Provides certainty but needs regular renewal.
Non-Binding (Preferred) Nomination
The trustee considers your wishes but makes the final decision. Never expires. Less certainty, but more flexibility if circumstances change.
Reversionary Pension Nomination
If you have an account-based pension, a reversionary nomination means the pension continues to your nominated beneficiary (usually spouse) without becoming a lump sum.
Tip: Check your nomination is current. Out-of-date nominations are a common estate planning failure. Log into your super account or contact your fund to confirm.
Tax on Super Death Benefits
The tax treatment depends on who receives the benefit and how:
| Recipient | Tax on Tax-Free Component | Tax on Taxable Component |
|---|---|---|
| Tax dependant (spouse, child under 18, financial dependant) | Nil | Nil |
| Adult child (non-dependant) | Nil | 15% + Medicare (or marginal rate less 15% offset) |
| Via estate to non-dependant | Nil | 15% + Medicare |
Note: Tax-free component includes your non-concessional contributions. Taxable component includes concessional contributions and earnings.
The Adult Child Tax Problem
Adult children who aren't financially dependent on you face tax on the taxable component of your super. On a $1 million super balance that's 80% taxable, that's potentially $130,000+ in tax.
Planning Strategies
- Recontribution strategy: Withdraw and recontribute as non-concessional to increase the tax-free component
- Spend super first: Draw down super before other assets if leaving to adult children
- Leave via spouse: Spouse receives tax-free, then can leave to children over time
- Insurance: Life insurance inside super may also be taxed; consider holding outside
Lump Sum vs. Income Stream
Dependants can receive benefits as either a lump sum or income stream (pension). Non-dependants can only receive a lump sum.
A reversionary pension to a spouse:
- Continues the existing pension
- Remains tax-free if both parties are 60+
- Counts against the recipient's transfer balance cap
How Talk Through Wealth Helps
Plan for efficient transfer of your super:
- See the tax impact on different beneficiaries
- Model recontribution strategies to minimise tax
- Track your tax-free vs. taxable components
- Compare lump sum vs. pension options
- Plan drawdown strategies with beneficiary tax in mind