If you have worked in Australia, it is almost certain that you have a superannuation fund that your employers have regularly paid into. Once you die, your beneficiary can claim the death benefit and any other invested funds. This death benefit is a payment your superannuation pays out to someone who is your dependant beneficiary or a trustee of your estate once you die. There are a few things that your beneficiary will need to do to claim the superannuation Death Benefit. We will explore those below.
How Does One Make A Death Benefit Claim?
If you have more than one superannuation fund, your beneficiary will need to contact all of them to claim everything to which they are entitled. The following details need to be determined before anyone can access a superannuation Death Benefit.
- How many superannuation funds did the deceased hold?
- Who did the deceased nominate as their beneficiary or beneficiaries for each fund?
- Does the superannuation fund include any other services, such as life insurance, that may be claimed now that the individual holding the super fund has died?
Who Usually Benefits From A Death Benefit?
Your death benefit is usually paid to one or more of your dependents (typically your spouse or offspring) or an administrator or executor of your estate or another legal representative. Generally, as a super fund member, you would have nominated someone as your beneficiary when you opened the fund.
There are two types of beneficiaries when it comes to sorting out the superannuation fund of a deceased person, and they are treated differently. The two beneficiaries are binding and non-binding. When you set up your membership, most superannuation funds generally let you nominate your binding or non-binding beneficiaries.
What Is The Difference Between Beneficiaries Of A Super Fund And Those Of An Estate?
It is important to note that the superannuation Death Benefit is not part of the deceased’s estate because the fund member, or the deceased, doesn’t own the fund. The superannuation fund is owned by the company that holds it in trust for the fund member. Upon the fund member’s death, the trustees distribute the member’s superannuation under the terms of their deed. The super fund’s beneficiaries can be different from those of the estate because the superannuation beneficiaries are nominated directly through the fund rather than the Will, if there is one.
Dependants are dealt with and defined differently in superannuation law and taxation law. For example, superannuation law looks at who can receive the death benefit, while taxation law deals with taxing the death benefit.
Death benefit dependants under superannuation law include:
- The marital or de facto spouse of the deceased;
- The deceased’s child;
- Anyone in an interdependent relationship with the deceased (interdependent relationships are close personal between two people living together where one or both individuals financially, domestically or personally, supporting the other);
Death benefit dependants under taxation law include:
- A spouse of the deceased or a de facto partner;
- The former de facto partner or spouse of the deceased;
- The deceased’s child (under 18 years of age);
- An individual financially dependant on the deceased; and
- Anyone n an interdependent relationship with the deceased.
Taxation law includes a death benefits dependant who received a super lump sum payment due to the deceased dying in the line of duty. This definition relates to a member of the Australian Federal police, defence force, a state or territory’s police force or a protective service officer.
How Does A Binding Beneficiary Differ From A Non-Binding One?
In the most basic terms, the difference between non-binding and binding beneficiaries is how sure it is that the Death Benefit will be paid to that beneficiary.
Binding beneficiaries automatically receive the Death Benefit. They have to apply for the superannuation Death Benefit, but it will be released to the nominated binding beneficiary. Suppose anyone believes that the nominated person or persons are not entitled to the benefit. In such cases, they should lodge a review with the superannuation fund straight away with the help of a lawyer.
Under superannuation law, binding nominations are valid if:
- The deceased has nominated an eligible person and shares they should receive;
- Allocated shares add up to 100 per cent;
- They are nominated in writing, signed and witnessed by two people aged over 18 who are not benefiting from the super; or
- The nomination is not more than three years old or renewed within the last three years.
The trustee, or super fund, doesn’t automatically release a Death Benefit to a non-binding beneficiary. Instead, they take the time to consider what the nominated person’s relationship was to the deceased at the time of their passing. The trustee will then decide whether to release the Death Benefit to the non-binding beneficiary or a more appropriate dependent.
Should the deceased have nominated a non-binding beneficiary, the trustee will release the superannuation Death Benefit:
- To the nominated non-binding beneficiary;
- To other dependents they deem more appropriate; or
- Directly to the deceased estate.
What Happens When The Super Fund Member Dies?
When a superannuation fund member dies, they must pay that deceased person’s superannuation death benefit. Death benefit insurance is included with all regulated super schemes. It is also available to ease any financial hardship.
Upon a fund member’s death, their superannuation account, including insurances taken out by them, are reviewed by the superannuation fund. After reviewing the accounts, the fund will advise nominated beneficiaries what documents they will need to prove that the fund member has died and that they are authorised to claim the deceased person’s superannuation. A death certificate and a copy of the Will are usually enough evidence. They may also require letters of administration.
How Does Someone Claim A Superannuation Death Benefit?
A beneficiary must contact each of the deceased’s superannuation funds and inform them of their fund member’s death. The super funds will explain what needs to be done to start the payment request for the superannuation Death Benefit. They will also advise you regarding what documents you need to complete and provide.
Although each superannuation fund is different, the processes required to set the wheels in motion to claim a death benefit are generally as follows:
- Notification that the fund member has died and provision of a certified copy of their death certificate has been supplied to the superannuation fund.
- Details of each nominated beneficiary, fund balances and any other amounts that may be payable are requested.
- All necessary forms are completed, and an application for the death benefit payment is made.
- The super fund reviews the beneficiary’s relationship with the deceased when assessing the death benefit application.
- The beneficiary will be advised of the outcome of the fund’s assessment and informed of who will receive the Death Benefit.
- Interested parties may request to appeal the fund’s decision if required.
- Should that appeal not yield the desired results, the beneficiary may take their appeal to the Superannuation Complaints Tribunal (SCT). People have 28 days in which to appeal.
- Once the process is complete, the Death Benefit is paid to the beneficiary.
The super fund trustees need to determine whether or not the superannuation Death Benefit forms part of the deceased’s estate. Should the executor of the deceased’s estate be the beneficiary, the total death benefit value must be calculated and added to the death benefit estimate in the inventory of assets and liabilities.
What About Lost Super?
Loved ones should complete an ATO’s form to search for unclaimed or lost super and include it with the death certificate, Will, grant of probate or letters of administration sent to the superannuation fund.
Is The Super Death Benefit Taxed?
Yes and no. Superannuation death benefits paid to the deceased’s dependents are tax-free. However, benefits paid to children of the deceased who are 18 years or older and no longer dependant on the deceased at the time of their death will be taxed.
Paying Death Benefits To Foreign Residents
A recipient of a super death benefit who is a foreign resident for Australian tax purposes is taxed the same as a resident. They are not generally liable to pay the Medicare levy, though. This is because death benefit payments are considered to be Australian-sourced income. If the benefit recipient is a tax resident of a country with a double tax agreement with Australia, an Australian tax may not be imposed. Beneficiaries should check their country’s taxation laws to see if Australia has a tax treaty in place.
Superannuation Death Benefits Paid As Income Streams
When a death benefit is paid as an income stream, the rule of proportion is utilised to calculate taxable and tax-free components. The calculated ratio will be applied to all benefits paid from the income stream, including those arising from the computation of the income stream.
If the death benefit income stream is being paid to the deceased’s dependant child, unless that child lives with a permanent disability:
- The income stream must cease being paid on or before the date the dependant child reaches 25 years of age;
- After the dependant turns 25, the remaining benefit must be paid as a tax-free lump sum.
1. What is superannuation?
Superannuation is a payment that employers must make on behalf of their employees. The money is paid into a super fund, usually of the employee’s choosing. When the employee retires, their superannuation will be enough to live comfortably. The money that accrues in the deceased’s superannuation fund can often build to several hundred thousand dollars even before retirement.
3. What is a superannuation death benefit?
Super death benefits are payments made to the deceased’s beneficiaries from monies held in their super account. These death benefits payments include any payouts from insurance policies associated with the super fund account. Claiming superannuation after someone dies is claiming a superannuation death benefit. These payments are made as income streams or lump sums. They can’t remain in the super fund following the fund member’s death.
4. How is the superannuation death benefit paid?
Who receives death benefit payments and how they are paid depends on the fund’s governing rules and any relevant requirements of the Superannuation Industry (Supervision) Regulations 1994. Dependants of the deceased can receive the benefit as a super income stream or as a lump sum, while non-dependants can only receive the benefit as a lump sum payment.
5. Is the superannuation death benefit part of a deceased estate?
No, superannuation isn’t legally considered part of a deceased estate. Therefore, you can’t include your super in your Will, so claiming their super death benefits must be dealt with separately. Super death benefits are not automatically distributed to the beneficiaries stipulated in the Will with the rest of the estate assets. Your Will covers the assets you own personally, but your super is money held in trust for you and is governed by different laws than those dealing with Wills.
6. What laws apply to claiming superannuation death benefits?
The Australian super funds abide by the following legislation:
- The Superannuation Industry Supervision (SIS) Act 1993
- The Income Tax Assessment Act (ITAA) 1997
7. How do I ensure my super goes to the right person when I die?
If you want to be sure your super and life insurance go where you want it to go, it is best to keep your super fund updated and nominate a valid person as your beneficiary. The super fund has the authority to decide who should receive your superannuation when you die if you don’t designate a beneficiary. Sometimes the super fund will pay the money to your estate. It is also a good idea to seek professional advice.
8. What else should I know?
Unless your child over 25 has a permanent disability, they can’t receive the super death benefit payment as an income stream. So when a child gets a death benefit pension from an earlier age, they will generally have to cash it in as a lump sum payment by the age of 25.