Estate Planning

Superannuation and estate planning

Tax on super death benefits

There may be tax payable on a super death benefit depending on the beneficiary’s circumstances. If the beneficiary is a dependant – defined under taxation laws as a spouse, a child under age 18 or anyone who has an interdependency relationship – the benefit will generally be tax free.

If the beneficiary is a non-dependant under tax rules, for example an adult child, 15% tax plus 2% Medicare Levy generally applies to the taxable portion of the payment. Insurance proceeds ultimately distributed to non-dependants will be taxed at 32% (including the Medicare Levy), so it might be a better alternative for life insurance to be held outside of superannuation by the life insured, of which the non-dependant is the nominated beneficiary.

Another option may be for the surviving dependant to draw an income stream from the super fund. This may fulfil their need for income following your death and may also be a more tax-effective option. Some potential beneficiaries, however, are prohibited from receiving a superannuation death benefit in the form of an income stream, including most adult children.

Superannuation is an important part of your overall estate plan. We encourage you to review your super fund statement and determine who your current beneficiary is. Then, ask yourself, ‘Does this reflect my wishes?’ If not, we would encourage you to speak to your adviser or contact your super fund.