SUPERANNUATION AND DEPENDANTS
A person’s superannuation is often their single most significant asset upon their death so it is important to understand who is eligible to receive a superannuation payment upon death. Superannuation laws mandate that a trustee may only pay a member’s death benefits to a deceased member’s ‘dependants’ or ‘legal personal representative’ (LPR).
Death benefits paid to the LPR will form part of the deceased’s estate and will be distributed along with the other assets according to the terms of the will (if there is one) or the intestacy rules (if there is not).
The rules in relation to ‘dependants’ are more complex.
WHAT IS A ‘DEPENDANT’?
The term ‘dependant’ means someone who was receiving and relying on financial support from the deceased at the time of their death.
In a superannuation context, the definition is extended to include any of the following, even if the person was not receiving financial support from the deceased:
(a) the deceased’s spouse - including a legal spouse, de facto at the time of death and a same sex
(b) a child of the deceased of any age - including a natural child, an adopted child, a step child (while their natural parent is alive) and an ex-nuptial child; and
(c) any person with whom the deceased had an ‘interdependency relationship’ at the time of their
The term ‘dependant’ does not include grandchildren, unless the grandchild is financially dependent on
the grandparent at the time of their death, or the member and the grandchild were in an interdependency relationship.
WHAT CONSTITUTES AN ‘INTERDEPENDENCY RELATIONSHIP’?
Two persons have an interdependency relationship if:
(a) they have a close personal relationship;
(b) they live together;
(c) one or each of them provides the other with financial support; and
(d) one or each of them provides the other with domestic support and personal care.
An interdependent relationship can also exist where there is a close personal relationship and the reason
any of the other requirements are not satisfied is because either or both parties suffer from a physical, intellectual or psychiatric disability.
Superannuation death payments can be paid as either:
(a) one or more lump sum payments;
(b) one or more pensions; or
(c) a combination of lump sums and pensions.
While a lump sum can be paid to any person who is a dependant, if a pension is to be paid to a dependant who is a child of the superannuation fund member, the pension can only be paid while the child is:
(a) under the age of 18, or until they turn 25 if they are financially dependent on the deceased; or
(b) disabled under the Disability Services Act 1986 (Cth) (Disability Services Act).
TAXATION OF DEATH BENEFITS
The tax payable on a death benefit will differ depending on a number of factors, including whether:
(a) it is made to a ‘death benefit dependant’;
(b) the payment is a lump sum or a pension payment; and
(c) it comprises a tax free component or taxable component (or a proportion of both).
The rules in relation to lump sum and pension payments and tax consequences of any payment are complex and not considered in this flyer.
As a threshold issue, it is important to understand that the ‘death benefit dependant’ definition is narrower than the ‘dependant’ definition discussed above and is limited to:
(a) a spouse or former spouse of the member;
(b) a child of the member, aged under 18;
(c) any other person with whom the member had an interdependency relationship just before they died; or
(d) any other person who was financially dependent on the member just before he or she died.
For a printable version of this information, refer to the attached flyer.