Superannuation death benefits: how they're paid out and how long it takes

Superannuation is often one of the largest single assets in an estate and one of the most misunderstood. Unlike other assets, super doesn't automatically form part of the deceased's estate. It sits in a trust structure, and the trustee decides where it goes. That distinction shapes both how long it takes to pay out and who ultimately receives it.

Super is not part of the estate by default

When someone dies, their bank accounts, property, shares, and personal possessions form part of their estate and pass under their will. Superannuation is different. The super fund holds the balance in trust for members, and on death, the trustee decides who to pay it to subject to legislation and the fund's rules.

The trustee can pay a death benefit to:

• The deceased's dependants (spouse, children, financial dependants, interdependency partners)
• The deceased's legal personal representative (i.e. the executor, to be dealt with under the will)

The trustee cannot pay a death benefit to non-dependants directly. If the deceased wanted a non-dependant (e.g. a sibling or friend) to receive their super, the only way was for the benefit to be paid to the estate and then distributed under the will.

Binding death benefit nominations

Members can direct the trustee's decision using a binding death benefit nomination, which is a form completed while alive that tells the trustee who to pay the benefit to. There are two types:

• Lapsing nominations which expire every 3 years and must be renewed to remain valid.
• Non-lapsing nominations which remain in force until revoked or the member dies (only some funds offer these).

Where there's a valid binding nomination and it names eligible beneficiaries, the trustee must follow it. The claim process is straightforward and typically completes within 4 to 8 weeks.

Where there's no nomination, or the nomination has lapsed, or it names ineligible beneficiaries, the trustee falls back on its discretion. That's where things slow down significantly.

The trustee discretion process

Without a valid nomination, the trustee has to work out who is entitled to receive the benefit and in what proportions. This involves:

• Identifying all potential beneficiaries (dependants and the estate)
• Inviting claims from those beneficiaries
• Making a preliminary decision and notifying all parties
• Allowing a 28-day objection period
• Considering any objections and making a final decision
• Paying the benefit

This process is prescribed by law and can't be shortcut. Even a straightforward case takes 4 to 6 months. A contested case such as a claim from an estranged adult child alongside a surviving spouse can take 12 months or longer.

Tax treatment

How much of the benefit reaches the recipient depends on their tax dependency status:

• Tax dependants (spouse, de facto partner, minor children, financial dependants, interdependent partners) receive the benefit tax-free.
• Non-tax dependants, usually adult independent children, pay tax on the taxable component. The rate is 15% plus Medicare levy on the taxed element and 30% plus Medicare levy on any untaxed element.

This tax treatment applies whether the benefit is paid directly or paid via the estate. Where a benefit is paid to the estate and then distributed to non-dependants under the will, the estate pays the tax before distribution.

Can super death benefits be advanced?

Sometimes, but more often we are able to advance against other assets of the estate while you wait for the super component to be resolved.

Where the super benefit is being paid to the estate (either because the nomination directed it, or because there's no nomination and the trustee decided the estate is the appropriate recipient), we treat it like any other estate asset for the purpose of an inheritance advance.

What beneficiaries can do

If you are expecting a super death benefit:

• Contact the fund promptly to lodge a claim. Provide the death certificate and proof of identity.
• Ask whether the deceased had a valid binding nomination as this determines the process and timeline.
• If the fund is exercising discretion, respond to any claim requests promptly. Delays here compound.
• If you are a non-tax dependant, get advice on whether to receive the benefit as a lump sum or (where available) an income stream as the tax outcomes can differ.

Frequently asked questions

Waiting on a super payout and need cash flow now? Where your entitlement is clear — through a binding nomination or via the estate — Inherita can advance against it.