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July 20 2023
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What happens to your super when you die?

It can be difficult to think about death or talk about it with your loved ones, but much like a will, having the admin around your super organised for when you’re gone can be a huge help. In this article, we’ll explore super death benefits, dependants for super and tax purposes, as well as the different types of beneficiary nominations.
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What is a superannuation death benefit?

A superannuation death benefit is a payment made from a person’s super fund when they die. In most cases, the super death benefit is paid to the nominated beneficiary of the deceased person, or in other words, the person or people formally chosen by the deceased.

A super death benefit can be made up of the deceased's super account balance including any insurance benefits that may be payable, net of any applicable fees and taxes.

If paid to a dependant of the deceased, the death benefit can be paid either as a lump sum of money or an income stream. If paid to a non-dependant of the deceased, the death benefit must be paid as a lump sum.

Who can receive a super death benefit?

Super fund trustees can pay a death benefit to either of the following:

  • the deceased member's superannuation dependant(s)
  • the legal personal representative of their estate.

If there are no dependants or legal personal representative, the trustee can use its discretion to pay the death benefit to another person, subject to applicable laws and the fund’s governing deed. To make this decision, the trustee will consider things like the circumstances of the deceased member, any written wishes they left behind, and any people who may have relied on them for support at the time of their death.

If there’s a valid binding beneficiary nomination – the trustee will follow that nomination when paying out the benefit. 

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What’s a ‘valid’ beneficiary nomination? 

To be valid, the binding beneficiary nomination must still be in effect, and the nominated person/people must fit the definition of a dependant under superannuation law and the fund’s trust deed when the member passed away. Alternatively, the legal personal representative of the estate can be a valid beneficiary nomination.

If there’s no valid binding nomination – the trustee will pay the dependant(s) of the deceased, or they may pay some or all of the death benefit to the legal personal representative. The trustee will consider your circumstances at the time of your death but there’s a chance that your super benefit may not go to the people who you had in mind. That’s why nominating a beneficiary is an important decision, and you may want to get professional advice from a lawyer or licensed financial adviser.

Find out more about nominating a beneficiary

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What is a legal personal representative?

Your legal personal representative is someone legally recognised to manage your affairs. This is typically the executor of your will or administrator of your estate.

What is a dependant?

There are two different definitions of a dependant that are important for understanding super death benefits: 
  • dependant under superannuation law – defines who is eligible to receive a death benefit and if it can be paid as an income stream.
  • dependant under tax law – determines how death benefits (including income streams) may be taxed.
While dependants under superannuation law may receive a death benefit, it doesn’t necessarily mean they can receive the benefit tax-free.
 

Who is a dependant for super purposes?

For super purposes, a person is your dependant if, at the time of your death, they were: 
  • your spouse or de facto spouse of any sex,
  • your children (including your natural, step or adopted children) of any age,
  • a person substantially financially dependent on you,
  • an individual with whom you were in an interdependency relationship with (see below).
According to the ATO, an interdependency relationship exists between two people if:
  • they have a close personal relationship; and
  • they live together; and
  • one or each of them provides the other with financial support; and
  • one or each of them provides the other with domestic support or personal care.
Please note, the meaning of ‘dependant’ can vary depending on the governing rules of the relevant fund.

Who is a dependant for tax purposes?

For the tax purposes, a person is your dependant if, at the time of your death, they were:
  • your spouse or de facto spouse of any sex,
  • your former spouse or de facto spouse of any sex,
  • your children (including your natural, step or adopted children) under 18 years old,
  • a person substantially financially dependent on you,
  • an individual with whom you were in an interdependency relationship with (as defined above).
According to the ATO, two people may also have an interdependency relationship for tax purposes if they have a close personal relationship, and the reason they do not satisfy one or more of the other requirements of an interdependency relationship listed above is that either or both of them suffer from a physical, intellectual or psychiatric disability.

Dependants for tax purposes will generally receive your super death benefit tax-free if it’s paid as a lump sum. They may also be eligible to receive the death benefit as an income stream (non-dependants are only eligible for a lump sum).

Learn about the tax implications for dependants and estates.
 

What are the different types of beneficiary nominations?

 

Non-binding beneficiary nomination

A non-binding beneficiary nomination acts as a guide for your super fund trustee in deciding who should receive your super. The trustee will consider your non-binding nomination but isn’t legally required to follow it. The trustee may use its discretion in deciding who should receive your super, considering your relationships at the time of your death.

 

Binding beneficiary nomination

A valid ‘binding’ beneficiary nomination is legally binding, so it means you have the final say on who receives your super.

Binding nominations automatically lapse every 3 years. A valid binding nomination must be updated within the 3 years to remain binding, otherwise it will be treated as a non-binding nomination. The person or people nominated must be a dependant at the time of death or your legal personal representative of your estate. If your nomination is invalid, your trustee will have discretion over who receives your death benefit payment.

Please note, at Rest, this type of nomination is not available to Rest Pension members.

 

Non-lapsing beneficiary nomination

A valid non-lapsing beneficiary nomination is a nomination that your fund must follow (subject to the fund accepting the nomination). This type of nomination does not lapse or expire after any period. If you make this type of nomination, it’s important to keep it up to date, so that your super ends up with the person you wish it to. Note that not all funds offer non-lapsing beneficiary nominations.

Like binding beneficiary nominations, if your non-lapsing nomination is invalid, your fund will have discretion over who receives your death payment.

Please note, at Rest, this type of nomination is available to Rest Pension members only.

 

Reversionary beneficiary nomination

Specifically for pension accounts, if you nominate a reversionary beneficiary, your dependant at the time of your death will receive ongoing pension payments from your superannuation death benefit after you die. You can select only one reversionary beneficiary, and, for some super funds like Rest, you can’t change or delete your nomination. Check with your super fund for details on specific rules.

If you nominate a reversionary beneficiary, they must be an eligible dependant, otherwise your trustee will use its discretion to pay the death benefit to your dependant(s) or legal personal representative.
  Non-binding beneficiary nomination Binding beneficiary nomination Non-lapsing beneficiary nomination Reversionary beneficiary nomination
Is a valid nomination binding? No, but the fund may consider this to determine who should receive the death benefit. Yes Yes Yes
When can a nomination be made? Any time Any time Any time Only when you open your pension account*
Can the nomination be changed or updated? Yes Yes Yes No*
Will the nomination expire after any period of time? No Yes, after 3 years No No
Who can be nominated? A dependant or legal personal representative A dependant or legal personal representative A dependant or legal personal representative A dependant (certain restrictions regarding nominating children apply)

*For Rest members. Rules may be different depending on your super fund.

Is your super included in your will?

No, your super doesn’t automatically form part of your estate and is not considered an asset in your will. This is because super has its own set of laws and is treated separately from other assets, like your car or your home.

However, if you want to leave your super to someone who is not your dependant or would prefer to have your super managed according to your will, you could consider nominating your legal personal representative as your beneficiary. Validly nominating a legal personal representative means that your super death benefit will form part of your estate and can be distributed according to your will (or according to the relevant intestacy laws if you don’t have a will). Before making any decisions about this, it’s recommended that you seek legal advice from an estate planning lawyer or family lawyer.

To make sure your super is given to the right people after you die, you may want to review your super beneficiary nomination regularly, especially when your circumstances change.

Rest App

Tip: Rest members can review their nominated beneficiary anytime by logging in to the Rest App or Member Access.

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