Information Centre · Superannuation & SMSF Succession
Superannuation Death Benefits and Adult Children: Estate Planning Risks
Adult children may be able to receive superannuation death benefits in some circumstances, but the legal, tax and estate-planning outcome depends on the fund rules, the nomination, the dependency position and whether the benefit is paid directly or through the estate.
Key points
- Adult children can receive superannuation death benefits in some circumstances, but the outcome depends on the fund rules, the nomination in place, whether the child is a financial dependant, and whether the benefit is paid directly or through the estate.
- "Dependant" means different things for superannuation payment purposes and for tax purposes — an adult child may qualify as a superannuation dependant in limited cases but rarely qualifies as a tax dependant.
- Paying a superannuation death benefit direct to an adult child can trigger significant tax consequences on the taxable component — always obtain accounting or tax advice before deciding on a payment path.
- In blended families, direct payments to adult children of an earlier relationship can leave a surviving spouse under-provided for, or vice versa — coordination with the Will is essential.
- Where the benefit is paid to the estate, adult children may still challenge under Part IV of the Administration and Probate Act 1958 (Vic) if the Will fails to provide adequately for an eligible person.
- Life insurance inside super, testamentary trusts and unequal outcomes between the Will and super nomination are recurring problem areas that should be reviewed together with a lawyer and (for tax) an accountant.
Can Adult Children Receive Superannuation Death Benefits?
Yes — a superannuation death benefit can generally be paid to a child of any age, either directly (subject to the fund's rules and any valid binding nomination) or through the estate. Cornerstone context is in does your will control your superannuation?
Two Different Definitions of "Dependant"
Two separate statutory tests apply. Under section 10 of the Superannuation Industry (Supervision) Act 1993 (Cth) a child of any age is a "dependant" of the deceased and may receive a superannuation death benefit from the fund. Under section 302-195 of the Income Tax Assessment Act 1997 (Cth) an adult child is generally not a "death benefits dependant" for tax purposes unless the adult child was in an interdependency relationship with the deceased, was financially dependent on the deceased or is under 18. The mismatch between payment eligibility and tax status drives most of the tax outcomes described below.
Direct Payment Versus Payment to the Estate
- Direct payment: the trustee pays the adult child directly. Simpler in some cases, but the taxable component is generally taxed, and the payment is outside the will.
- Payment to the estate: the benefit is paid to the legal personal representative and distributed under the will. This allows the use of testamentary trusts and permits the parent to shape the outcome across the whole family through the will.
The decision must be made in advance and reflected in the nomination. See binding death benefit nominations in Victoria.
Adult Children and Blended Families
Adult children from an earlier relationship are the single most common flashpoint. A binding nomination in favour of a new spouse can leave them with nothing from the super balance — even if the will divides the estate equally. See superannuation, blended families and second relationships.
Unequal Outcomes Between Super and the Will
Where the will and the super nomination are not reviewed together, one child can end up with a much larger overall share than another. A parent who expected an equal outcome may in practice have created a very unequal one. Coordinated planning is the answer.
Life Insurance Inside Super
Many super balances include life insurance. Insurance proceeds usually form part of the death benefit and follow the same nomination — a small super balance can translate into a much larger post-death payment. Adult children who did not know insurance was in place often react strongly when they see the final amount.
Tax Warning: Obtain Accounting/Tax Advice
The tax treatment of a superannuation death benefit depends on the components of the benefit, the identity of the recipient and whether the recipient is a tax dependant. Adult children usually are not. Always obtain advice from a qualified accountant or tax adviser — this article does not provide tax advice, and Parke Lawyers does not provide financial product, superannuation product or investment advice.
Family Provision and Estate Dispute Risk
An adult child who has been left with a smaller share of the parent's total assets because of the super nomination may consider a family provision claim under Part IV of the Administration and Probate Act 1958 (Vic) in Victoria — see family provision claims in Victoria. Trustee decisions may also be challenged in the way described in superannuation death benefit disputes.
Planning Checklist
- identify every super fund, current nomination and reversionary pension election;
- consider whether direct payment or payment to the estate is preferable;
- coordinate the nomination with the will and any testamentary trust;
- consider blended-family and adult-children fairness in the overall plan;
- obtain accounting/tax advice on the components of the benefit and likely tax;
- review the plan after major life events (marriage, separation, births, deaths);
- see also our wills and estate planning service page, and our dedicated superannuation and SMSF succession advice.
Frequently Asked Questions
Can adult children receive superannuation when a parent dies?
Yes, in appropriate circumstances. A child of any age is a 'dependant' of the deceased for payment purposes under section 10 of the Superannuation Industry (Supervision) Act 1993 (Cth), so the trustee may pay a superannuation death benefit to an adult child either directly (subject to the fund's rules and any valid nomination) or to the deceased's legal personal representative for distribution through the estate.
Is superannuation automatically divided between children?
No. Superannuation is not automatically divided between children. The trustee pays the benefit in accordance with any valid binding nomination and, where none applies, in the exercise of the trustee's discretion within the trust deed and the SIS Act. The Will does not directly control a superannuation death benefit unless the trustee pays it to the legal personal representative.
Should superannuation be paid to adult children directly or to the estate?
There is no single answer. Direct payment to adult children can be administratively simpler but is subject to the tax treatment described below. Payment to the estate allows the benefit to be dealt with under the Will (including through a testamentary trust) and may produce a more balanced outcome across the family. Legal, financial and tax advice tailored to the fund, the beneficiaries and the wider estate plan should be obtained before deciding.
How is a death benefit paid to an adult child taxed?
The tax treatment of a superannuation death benefit is governed by the Income Tax Assessment Act 1997 (Cth). The relevant concept is a 'death benefits dependant' under section 302-195, which is narrower than the SIS Act 'dependant' definition and generally excludes an adult child who is not otherwise a spouse or former spouse, in an interdependency relationship with the deceased, financially dependent on the deceased or under 18. A lump-sum death benefit paid to an adult child who is not a death benefits dependant is generally taxed on its taxable component under section 302-145. Specific tax advice should always be obtained.
Can adult children challenge a death benefit outcome?
In some circumstances. Where the fund proposes a direct payment to another person, an adult child may object to the trustee's proposed decision within the applicable time limit and, for APRA-regulated funds, may lodge a complaint with the Australian Financial Complaints Authority within the 28-day statutory period. Where a benefit is paid to the estate, an eligible person may bring a family provision claim under Part IV of the Administration and Probate Act 1958 (Vic).
How should superannuation be dealt with in a blended family?
In blended families a superannuation death benefit can bypass the Will and produce a result that is inconsistent with the parent's overall estate plan. Coordinated advice across the Will, binding death benefit nominations, life insurance held inside superannuation and (where applicable) self-managed superannuation fund succession is usually needed.
Superannuation & SMSF Succession
Coordinate super, adult children and your will
Parke Lawyers advises on binding death benefit nominations, testamentary trusts and coordinated estate planning where superannuation may pass to adult children.
This article is general information only and does not constitute legal, financial or tax advice. Please obtain advice tailored to your circumstances.