Accessing superannuation death benefits without a Will: a comprehensive guide
Published on September 20, 2024 by Gillian Kirwan
The loss of a loved one is an emotionally challenging time, and the financial implications can add to the stress. In such a time one of the critical financial aspects to consider is the superannuation death benefit. This article aims to provide a clear understanding of how to access superannuation death benefits in Australia, even in the absence of a Will.
Understanding superannuation death benefits
Superannuation death benefits are payments made from a super fund to the beneficiaries after a member’s death. These benefits can include the superannuation balance and any insurance benefits (such as life insurance) held within the super fund. It is essential to note that superannuation does not form part of a deceased person’s estate and therefore, does not get distributed in accordance to the terms of a Will unless you have specifically nominated your “legal personal representative” (LPR) in your superannuation binding death benefit nomination form. The Australian Taxation Office (ATO) outlines the rules for beneficiary nominations and distributions of superannuation funds.
Superannuation death benefits are typically paid out to nominated beneficiaries. The ATO outlines who can be a beneficiary and how funds should be disbursed. Beneficiaries can be nominated through non-binding or binding nominations. A non-binding nomination serves as a recommendation to the trustee of a super fund, who has the discretion to decide the recipient. Conversely, a binding death benefit nomination is a legal directive that the trustee must follow (if the nomination is valid).
Differentiating between dependent and non-dependent beneficiaries
A dependent beneficiary includes individuals financially reliant on the deceased or those in an interdependency relationship with them. This group encompasses spouses (including married, de facto and former spouses), children under 18, and other dependents, such as those with disabilities. Non-dependent beneficiaries might include adult children, parents, and siblings.
Payment methods
Superannuation death benefits can be disbursed as a lump sum or an income stream. Dependent beneficiaries might also opt to leave the funds in the superannuation account as reversionary beneficiaries. The tax implications of these payments vary depending on the deceased’s age and the beneficiary type. For example, payments to a spouse or dependent child might be tax-free, whereas payments to a non-dependent adult child are likely taxable.
Eligibility criteria for superannuation death benefits
Dependents
Australian superannuation law defines dependents as:
- the deceased person’s spouse or de facto partner (including same-sex partners) at the time of the deceased person’s death.
- the deceased’s children, including stepchildren, adopted children, children of the spouse, and any other children as defined by the Family Law Act 1975 (Cth) at the time of the deceased person’s death.
- individuals financially dependent on the deceased at the time of the deceased person’s death.
- those in an interdependency relationship with the deceased at the time of the deceased person’s death.
A valid nominated dependent will receive the superannuation death benefit. If no nomination exists, the superannuation fund trustee determines the eligible recipient.
Legal personal representative
In the absence of a nominated dependent, the superannuation death benefit may be paid to the deceased’s LPR, such as the executor of the will or the estate administrator. Benefits paid to the estate may be subject to tax, so the LPR should seek tax advice.
Claiming superannuation death benefits
To claim death benefits, beneficiaries must provide necessary documents to the superannuation fund, including the deceased’s death certificate, proof of the beneficiary’s identity, and authority to claim the benefit. The process varies across funds, so consulting a lawyer or financial advisor may be beneficial.
Payment options
- Lump sum payments
A lump sum is a one-time payment to the beneficiary or the trustee of the deceased’s estate. Dependent beneficiaries typically receive these payments tax-free, while non-dependent beneficiaries may face taxes.
- Income stream
An income stream involves regular payments to the beneficiary over time. These can be reversionary (continuing after the original recipient’s death) or non-reversionary (ending after the original recipient’s death). Tax treatment of income streams varies based on the ages of the deceased and the beneficiary.
Tax considerations
The taxation of superannuation death benefits depends on several factors, including the deceased’s age at death, the beneficiary’s age, and the benefit components.
Tax-free component
This component consists of after-tax contributions and taxed employer contributions, which are tax-free for the beneficiary.
Taxable component
This includes pre-tax contributions and investment earnings. Dependent beneficiaries might face lower tax rates or none at all, while non-dependent beneficiaries typically encounter higher tax rates.
It is important to see an experienced tax professional for a complete understanding of the tax implications.
Resolving disputes
Disputes over superannuation death benefits can be resolved with the help of the Australian Financial Complaints Authority (AFCA). Beneficiaries or trustees can lodge complaints within specified time limits. Common disputes involve delays in fund release, ownership issues, and distribution disagreements. If the issue remains unresolved with the fund or trustee, AFCA reviews the case’s specific details to ensure a fair resolution.
Please note that this article does not constitute legal advice. If you are seeking professional advice on any legal matters, you can contact Carroll & O’Dea Lawyers on 1800 059 278 or via our Contact Page and one of our lawyers will be able to assist you.
