Superannuation is held in trust by your fund and doesn't pass through your will — the trustee decides who receives it, guided by any binding nomination made. Benefits paid to a tax dependant (spouse, minor child, financial dependant) are tax-free; paid to a non-tax-dependant like an adult child, the taxable component is taxed at 17% or 32%. Recontribution can reduce this tax cost for retirees over 60.
Many retirees assume their will determines where their superannuation goes. In most cases, it does not. Superannuation is held in trust by your fund, not as part of your personal estate, and flows through your will only if specifically directed there. For anyone who has spent years building a super balance, understanding how death benefits actually work is one of the most important — and most frequently overlooked — elements of estate planning.
When you die, the trustee of your super fund decides who receives your death benefit. The trustee acts within the rules of the fund and superannuation law, and is required to pay the benefit to someone who falls within the Superannuation Industry (Supervision) Act 1993 definition of a dependant: a current or former spouse (including de facto), a child of the deceased of any age, a person in an interdependent relationship, or a person who was financially dependent on the deceased. The only alternative recipient is your legal personal representative — that is, your estate's executor — in which case the benefit flows through your will to your chosen beneficiaries. This is the only route through which super can reach someone outside the SIS dependant categories. Without a clear nomination, the trustee exercises their own discretion, typically after examining your personal circumstances at the time of death.
The tax treatment of a super death benefit depends on whether the recipient is a "tax dependant" under the Income Tax Assessment Act 1997 — a narrower definition than the superannuation law definition of dependant. A tax dependant is a current or former spouse, a child who was under 18 at the time of death, someone in an interdependent relationship, or anyone who was genuinely financially dependent on the deceased (Colonial First State FirstTech Super Death Benefits Guide 2025-26). When the benefit is paid to a tax dependant, it is entirely tax-free. When it is paid to a non-tax dependant — most commonly an adult, financially-independent child — the taxable component of the benefit is taxed in the recipient's hands. For the taxable taxed element (the most common type, representing contributions on which 15% super contributions tax has already been paid), the rate is 15% plus Medicare levy. For the rarer taxable untaxed element (typically from employer-funded arrangements where contributions tax has not been paid), the rate is 30% plus Medicare levy (Colonial First State FirstTech Super Death Benefits Guide 2025-26). For a retiree with a $500,000 super balance largely comprising taxable component, directed to two adult independent children, the tax liability on the inherited super can amount to tens of thousands of dollars.
There are four types of nomination a member can make to direct where their death benefit goes. A binding death benefit nomination is a formal instruction to the trustee that must be followed, subject to the nomination being valid. Lapsing binding nominations expire after a maximum of three years and must be renewed — a common planning failure for retirees who set one up years ago and assumed it remained in force. Non-lapsing binding nominations do not auto-expire but require trustee consent and are not offered by all funds. A non-binding nomination expresses your preference but leaves the trustee with discretion. Finally, a reversionary pension nomination — available only for pension accounts rather than accumulation interests — causes the pension to automatically continue to a nominated beneficiary, typically a spouse, on the member's death. The pension payments continue without interruption, the tax-free status of payments to a spouse aged 60 or over is preserved, and the surviving spouse receives a 12-month window before the death benefit is counted against their own transfer balance cap (Colonial First State FirstTech Super Death Benefits Guide 2025-26). For couples in pension phase, a reversionary nomination is typically the simplest and most reliable mechanism for ensuring continuity.
For retirees whose super will likely be inherited by adult independent children, there is a recognised strategy for reducing the tax cost: withdraw and recontribute. Because withdrawals from super are tax-free for members aged 60 and over, and because the re-contributed amount is treated as a non-concessional contribution that forms part of the tax-free component, this approach converts taxable component into tax-free component over time. Non-concessional contributions are capped at $120,000 per year for the 2025-26 financial year (Colonial First State FirstTech Super Rates and Thresholds 2025-26), with a bring-forward provision available for eligible members that allows up to $360,000 to be contributed in a single year across three years. The strategy is also constrained by total superannuation balance thresholds — members with a balance at or above $2.0 million cannot make non-concessional contributions at all. When planned across multiple financial years with a clear modelling of the tax saving, the recontribution strategy can be material. It is not a simple do-it-yourself exercise: contribution caps, eligibility rules, timing, and the interaction with estate planning intentions all need to be considered together.
Confirmed tax rates on death benefit taxable component to non-tax-dependants (ATO, https://www.ato.gov.au/individuals-and-families/super-for-individuals-and-families/super/withdrawing-and-using-your-super/superannuation-death-benefits): taxed element 15% plus 2% Medicare = 17% effective (when paid direct to beneficiary); untaxed element 30% plus 2% Medicare = 32% effective. Medicare levy does NOT apply when the death benefit is paid first to the deceased estate and then distributed — saving 2% on substantial taxed-component payouts. ITAA 1997 Subdivision 302-B sets the framework.
One Centrelink implication worth flagging for couples: when one spouse dies, the surviving spouse immediately moves from the couple assets-test thresholds to the single thresholds, even though the household's overall asset position may not have significantly changed. The couple thresholds are materially higher than the single thresholds — this threshold cliff can reduce or eliminate the surviving spouse's Age Pension entitlement in the period immediately following a partner's death, before any restructuring is possible. A reversionary pension does not prevent this — it is a consequence of the threshold structure, not the form of the death benefit payment.
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Key takeaways
- Superannuation is held in trust by your fund, not as part of your personal estate — it generally does not pass through your will unless directed there via your legal personal representative, the only route for super to reach someone outside the SIS dependant categories.
- Death benefits paid to a tax dependant (current or former spouse, a child under 18 at time of death, an interdependent partner, or a financial dependant) are entirely tax-free; paid to a non-tax-dependant like an adult independent child, the taxable component is taxed at 17% effective (taxed element) or 32% effective (untaxed element).
- There are four ways to direct a death benefit: a binding lapsing nomination (expires after three years and must be renewed — a common planning failure), a non-lapsing binding nomination (requires trustee consent, not offered by all funds), a non-binding nomination (leaves trustee discretion), and a reversionary pension nomination (automatically continues the pension to a spouse, typically the simplest option for couples in pension phase).
- The recontribution strategy — withdrawing tax-free super after age 60 and recontributing as non-concessional contributions (capped at $120,000/year, or $360,000 under bring-forward, unavailable above a $2.0 million Total Super Balance) — converts taxable component into tax-free component, reducing eventual death benefit tax for non-dependant beneficiaries.
- When one spouse dies, the survivor immediately moves from couple to single Age Pension assets-test thresholds — which are materially lower — potentially reducing or eliminating their pension in the period right after the death, regardless of whether the death benefit was paid as a reversionary pension or lump sum.
Frequently asked questions
Does my will decide who gets my superannuation?
Generally no. Superannuation is held in trust by your fund, separate from your personal estate, and the fund trustee decides who receives your death benefit — guided by any binding nomination you've made. The only way super passes through your will is if you nominate your legal personal representative (your estate's executor) as the recipient, which is also the only route for super to reach someone outside the superannuation law's dependant categories.
How much tax does my adult child pay on inherited superannuation?
If your child is an adult and financially independent, they're a non-tax-dependant, and the taxable component of the death benefit is taxed in their hands — 17% effective (15% plus 2% Medicare levy) for the more common taxed element, or 32% effective (30% plus 2% Medicare levy) for the rarer untaxed element. Notably, the Medicare levy doesn't apply if the benefit is paid first to your estate and then distributed, saving 2% on substantial payouts.
What's the difference between a lapsing and non-lapsing binding death benefit nomination?
A binding lapsing nomination is a formal instruction to the trustee that must be followed, but it expires after a maximum of three years and needs to be renewed — many retirees set one up years ago and mistakenly assume it's still in force. A non-lapsing binding nomination doesn't automatically expire, but it requires the trustee's consent and isn't offered by every fund. Checking your nomination's status and expiry is a basic but essential part of estate planning.
How does the recontribution strategy reduce death benefit tax?
Since super withdrawals are tax-free for members 60 and over, a member can withdraw funds and recontribute them as non-concessional contributions, which form part of the tax-free component rather than the taxable component. Done across multiple years, this reduces the proportion of taxable component in the balance, lowering the eventual tax paid by non-dependant beneficiaries like adult children. It's capped at $120,000 a year (or $360,000 under the three-year bring-forward) and unavailable for members with a Total Super Balance of $2.0 million or more — it needs careful planning alongside contribution caps and estate intentions.