A common question amongst Australians as they move towards retirement is: “Have I got enough super?” But, there’s another potentially more confronting issue to consider: What happens to my superannuation when I die?

It is essential to plan for your retirement goals and life after work but, in my experience, many people don’t understand the potential ramifications of death on their super balance and how it is treated.

It’s not something that most of us like to consider but the issue is often poorly understood and a bit of a minefield. As an example, there are restrictions on who you can leave your superannuation to, and how death benefits around super are taxed.

Taxation on death benefits from superannuation can be complex and peoples’ assumptions don’t necessarily apply. Our superannuation balance comprises of both a tax-free portion and a taxable portion of the funds in your account.

It is like a hidden inheritance tax. For example, if you die and have a surviving spouse or partner, the superannuation holding can go to them tax free. If that’s not the case, and the money is left to your adult children then the taxable portion of your super balance could have 15% tax applied plus another 2% for the Medicare Levy.

There are strategies which could be used to legally minimise this tax, such as taking cash out and recontributing it back into your account once you can access your superannuation.

Who the benefits will go to can also be a vexed question. You cannot just leave super money to anybody. It needs to be a spouse/partner, your children or someone financially dependent on you. If that doesn’t apply then leaving it to your Legal Personal Representative is likely the best option.

This type of planning is not just for middle-aged or older members of the community. For example, young singles with no children likely cannot leave their superannuation to their parents or their friends, especially if they don’t rely on you for financial support.

This article was authored by HLB Wealth Financial Adviser, Brendan Bate and appeared in the Autumn 2024 issue of HLB Mann Judd Perth’s Client Alert. Brendan can be contacted at bbate@hlbwa.com.au or +61 (0)8 9267 3296.

Brendan Bate (ASIC No. 1272327) and HLB Wealth Pty Ltd (ASIC No. 428645) are Authorised Representatives of Paragem Pty Ltd, ABN 16 108 571 875, AFSL 297276

Disclaimer: The information contained in this article has been provided as general advice only. The contents have been prepared without taking account of your personal objectives, financial situation or needs. Before you make any decision regarding any information, strategies or products mentioned in this article, you should consult your financial adviser to consider whether that is appropriate having regard to your personal objectives, financial situation and needs.