Losing a loved one is never easy, but understanding the process for claiming a death benefit payout can provide important financial support to beneficiaries. In Australia, death benefits are paid out by superannuation funds to dependent beneficiaries or the trustee of their estate, in accordance with governing rules and regulations.
However, it’s important to note that non-dependents cannot receive superannuation benefits directly from the deceased person. In addition to understanding the process for receiving a death benefit, beneficiaries should also be aware of the tax implications. At Aussie Injury Lawyers, our experienced team can provide guidance and assistance in setting up a legal personal representative and claiming death benefit payments. Read on to learn more about the process for receiving death benefits and the taxes you may have to pay.
What Is a Death Benefit?
When a member of a superannuation fund passes away, the fund pays out a superannuation death benefit to the dependent beneficiary or the trustee of their estate. This payment should be made as soon as possible after the member’s death.
The payment form and recipient of the benefit depend on the governing rules of the fund and the requirements of the Superannuation Industry (Supervision) Regulations 1994 (SISR). If the deceased had dependents, they can be paid via a super income stream or a lump sum, or both. If they had non-dependents, they can only be paid via a lump sum unless the trustee has not been able to locate a legal personal representative or dependant of the member after making reasonable enquiries, in which case the benefit may be paid to an individual under Clause 6.22 of the SIS Regulations.
Understanding Death Benefits
In accordance with federal law, superannuation death benefits are available only to the dependents and legal personal representative of the deceased. LPRs are not lawyers but rather the executors or administrators of the estates of deceased members.
It’s important to note that a death benefit cannot be paid directly to a non-dependent from super. You cannot directly transfer your superannuation entitlement to a friend, cousin, or charity, even if you nominate them on your super fund’s website. This is because they are not financially dependent on you at the time of your death.
A non-dependent cannot receive superannuation benefits from a deceased person without the deceased’s LPR. You can nominate a dependent to claim your superannuation entitlements upon your death, or you can nominate an LPR to distribute your superannuation in accordance with your will.
Requirements for Payout of Death Benefits
To receive a death benefit from a life insurance policy or super fund, the beneficiary needs to complete a death claim form and submit it to the insurance company or super fund with a certified copy of the death certificate. If multiple beneficiaries are listed on a policy, everyone is required to complete a death benefits claim form to receive the applicable death benefit. In most cases, the beneficiary will be contacted by the superannuation fund or insurance broker to inform you of your specific requirements when making a superannuation death benefit claim.
What Taxes Do You Have To Pay On Lump Sum Death Benefits?
When it comes to taxes on lump sum death benefits in Australia, the most important thing to know is whether you’re classified as a “death benefit dependant”. If you are, then you won’t have to pay any taxes on the lump sum death benefit you receive. But if you’re not classified as a “death benefit dependant”, you’ll have to pay a maximum of 15% plus the Medicare Levy on the taxed part of the taxable component and a maximum of 30% plus the Medicare Levy on the untaxed part of the taxable component. Dependants are defined in section 10 of the SIS Act and include spouses (including de facto and same-sex partners), children (including step-children) of any age, persons who are dependent on the deceased member and persons who are in an interdependency relationship with the deceased.
It’s worth noting that a lump sum death benefit will only include an untaxed element if the super fund has claimed a tax deduction for a life insurance policy taken out on the deceased member. If the super fund has not claimed a tax deduction, then the proceeds of the insurance policy will be treated as a taxed element of the taxable component of the lump sum death benefit. To make a claim for a superannuation death benefit, you’ll need to provide documents such as a certified copy of the deceased member’s birth certificate and trust deed, along with evidence of your relationship to the deceased member. If you’re the de facto spouse or an adult child of the deceased member, you may be entitled to the death benefit payment.
It’s important to contact the deceased member’s super fund as soon as possible after they have passed away to discuss your entitlements and the payment process. The super fund trustee will assess your claim and decide how much you’re entitled to based on the superannuation law and the terms of the trust deed. If you’re unsure about any aspect of the claim process or need advice on how to proceed, it’s a good idea to refer to the super fund’s website or contact their customer service team. Confirming the information you need and providing all the necessary documentation will help to speed up the process of deciding how the funds will be paid out to the beneficiaries.
Death benefits can provide important financial support to beneficiaries after the policyholder or member passes away. If you are named as a beneficiary of a death benefit policy, it’s important to be aware of the process for receiving the benefit and the tax implications. It’s also a good idea to consult with an accountant or attorney for current tax or legal advice.
Don’t hesitate to take proactive steps to find out if you are named as a beneficiary of a death benefit policy. Having important information and documents on hand can help make the process of receiving a death benefit smoother and less stressful. If you require some more guidance and assistance in setting up a legal personal representative or would like to find out more about claiming death benefit payments, our experienced and helpful team at Aussie Injury Lawyers can help; just give us a phone or email via our contact form.