Understanding Superannuation and Death Benefits

Superannuation, often referred to as super, is a crucial component of our retirement system. It’s essentially a long-term savings plan designed to provide financial support during retirement. However, superannuation doesn’t just cease to exist upon death; it can play a significant role in estate planning and providing for loved ones after you’re gone. When a member of a superannuation fund passes away, their super balance doesn’t automatically become part of their estate. Instead, it’s held in trust by the trustee of the super fund. The trustee then has the responsibility of distributing the deceased member’s super balance according to the fund’s rules and the applicable laws.

Death Benefit Payments: Taxation and Considerations

Superannuation must be paid to a dependant person(s) as defined in the SIS act, however there is another test, as to whether they are tax dependants or not.

– Dependants: Typically include spouses or partners, children (including adult children), financial dependants, and other individuals who were financially dependent on the deceased at the time of death. Death benefit payments to dependants are generally tax-free.

– Non-Dependants: This category encompasses individuals who do not meet the criteria of a dependant. For non-dependants, such as adult children financially independent from the deceased, the tax treatment of death benefit payments differs. When they inherit the money, they will have to pay tax on the taxable component, however it does come with an offset. It is also possible that the policy due to insurance has a third component known as untaxed taxable component which comes with no offset.  

Terminal Illness and Superannuation

Terminal illness can present unique challenges in the realm of superannuation and estate planning. In Australia, individuals diagnosed with a terminal illness may be eligible to access their super early under specific conditions. This provision aims to alleviate financial burdens during what is often a challenging time. The tax treatment of super payments for terminal illness differs from regular super withdrawals. Terminal illness is a condition of release, however taxable component is taxable to the member (less an offset) so it takes some planning to best understand how to release funds early when you are under preservation age. If you are over preservation age, the funds are all tax free.

Estate Planning and Beyond

Beyond superannuation, estate planning plays a pivotal role in ensuring your assets are distributed according to your wishes upon death. This encompasses creating a legally binding will, establishing powers of attorney, and considering strategies to minimize tax liabilities for your beneficiaries. It’s essential to review and update your estate plan regularly, especially after significant life events such as marriage, divorce, the birth of children, or changes in financial circumstances. If you make a Binding Death Nomination on your Superannuation Funds, it is also important to note that it may require renominating every three years (this is dependant on the superfund provider).


Death and terminal illness are inevitable aspects of life, yet they often evoke complex financial and emotional considerations. Understanding the implications within and outside of superannuation, along with the associated tax consequences, is crucial for effective estate planning and ensuring your loved ones are provided for after you’re gone.

By staying informed, seeking professional advice when needed, and taking proactive steps to plan for the future, you can navigate these challenges with greater clarity and peace of mind. Remember, while the topic may be daunting, addressing it head-on can lead to greater financial security and a legacy that reflects your values and intentions.

If you have any questions or need further assistance, please contact us today. You can also browse our other blog posts for topics that may be of interest to you.

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