An untaxed element could arise with payments made from an untaxed superannuation fund (e.g. public sector super fund) or the proceeds of an insurance policy paid via the super fund.
Another option to receiving a lump sum, if offered by your fund, may be for a surviving dependant to draw an income stream from the deceased’s super fund. This may be a more tax effective option, however a more restrictive definition of dependant usually applies in this case. The beneficiary must be a tax-dependant. If paid to a minor child, the income stream must be paid out as a lump sum when the child turns 25 years of age.