Superannuation & Death

Superannuation as an estate planning asset is often overlooked.  This is despite superannuation becoming the largest retirement investment vehicle, while also frequently holding life insurance payouts.

Superannuation member accounts do not form part of a deceased estate unless:

1. the trustee(s) of the superannuation fund are specifically instructed by the deceased (prior to death) to distribute the deceased’s superannuation interest to his or her estate; or
2. it is ‘hard wired’ into the superannuation fund trust deed; or
3. in the absence of ‘binding’ payee, the trustee(s) of the superannuation fund decide to pay the deceased’s interest into his or her estate..

Who can receive a Superannuation Death Benefit 

Although Superannuation Death Benefits can be paid to beneficiaries as a pension (under certain conditions), today we are focusing on lump sum death benefits.

Only those who are considered to be Superannuation Industry Supervision (SIS) dependant can receive superannuation death benefits.  SIS dependants include:

• spouses (including de-facto and same sex couples)
• children (including adopted, step and ex-nuptial children)
• ‘Ordinary meaning’ dependants
• a person who is in a relationship of interdependency with the deceased
• Legal Personal Representatives (LPR).

However, SIS dependants do not include:

• former spouses (unless they are ‘Ordinary meaning’ dependants)

• step children if the step-child’s natural parent has predeceased the deceased in question.

How are superannuation lump sums death benefit taxed?

The following table should help clarify the situation: 

                               *Plus Medicare levy of 1.5% for residents

Other considerations/questions:

• should or can the superannuation benefit be paid as a pension?
• reversionary pensions
• anti-detriment provisions
• who is deemed to die first when a couple die?