The death of a loved one can be an extremely difficult time and working out what happens to their super can place additional pressure on the situation. Having an idea of what this process will look like may help you be more prepared.
What is a death benefit claim?
If a partner (like a spouse or from a de-facto relationship) passes away, you are, by default, eligible to receive what's known as a 'death benefit'. This is made up of:
- The deceased’s super balance, excluding any applicable fees and taxes
- Any insured benefits that may be payable; for example, all Rest members have automatic death insurance included while there are funds in their account.
||Tip: Any death benefit is payable as a lump sum or a pension to the member’s beneficiaries.
How beneficiaries work
In the case of any death, Australian super law automatically pays your remaining super to your spouse or dependents unless you have nominated an alternative beneficiary. But what happens if you are the beneficiary of someone else's super?
In this scenario, the deceased’s super fund will reach out (if you don't reach out first), where you usually have a choice of a receiving their death benefit as a lump sum or pension (income stream):
- If received as a lump sum, payments are generally tax exempt. You do have the option to re-contribute this straight back into your super, but this will count towards your non-concessional contributions cap.
- If received as an income stream, any tax payable will depend on the age of both the deceased and the recipient.
||Tip: In the case that multiple beneficiaries have been nominated, this will be split by the super fund as per the members wishes.
Tax rules for death benefits
While nominating beneficiaries are bound under superannuation law, payouts to nominees are guided by the Australian Tax Office (ATO).
Tax laws around death benefits are very different depending on your age, your relationship to the deceased, how you accept the payout and how the deceased was having their super paid to them. If you are facing a current query or concern, you can find out more information and specific case studies from the ATO.
Alternatively, one of our Rest advisors can help you navigate any tax complexities or questions.
If you're facing the death of a loved one or have come into a sum of money, navigating the tax implications and regulations can be complex. It might be a good idea to discuss your options with a Rest advisor to work out the best plan for you.