Super and estate planning
Who can be paid a super death benefit?
The trustee can pay a super death benefit from a super fund to one or both of the following:
- the member's legal personal representative (LPR), or
- one or more of the member's dependants.
A particular fund's trust deed may be more restrictive about who a death benefit can be paid to. Remember to check the trust deed to see if any restrictions apply to the fund you are dealing with.
If the member has died and the trustee, after making reasonable enquiries, has been unable to find either a legal personal representative or a dependant of the member, the trustee may cash the member's benefits in favour of another individual, subject to the fund's governing rules. The trustee must make a decision in relation to the benefit that is fair and reasonable in all the circumstances of all parties who have, or are likely to have, an interest in the death benefit. Interested parties who consider that the trustee's decision is unfair or unreasonable may have the matter dealt with by the Superannuation Complaints Tribunal (SCT). The SCT is not available to potential beneficiaries of SMSFs; however, general legal recourse is available.
If the trustee is unable to find an appropriate beneficiary, the benefit must be dealt with under the unclaimed money provisions of the Superannuation (Unclaimed Money and Lost Members) Act 1999, administered by the ATO.
Who is a dependant (SIS)?
There are some differences in the definition of a dependant for super and tax purposes as shown in the table below. The super definition determines who can receive a super death benefit. The tax definition determines how a super death benefit will be taxed (ie as a dependant or non-dependant).
|Child under age 18||Yes||Yes|
|Child aged 18 or over||Yes||No|
|Financial dependant (including dependent adult child)||Yes (full or partial)||Yes (full)|
|Individual who receives a superannuation lump sum because of the death of another person if the deceased person died in the line of duty as; a member of the Defence Force, Australian Federal Police, the police force of a State or Territory; or a protective service officer||No||Yes|
A spouse is a dependant regardless of whether the spouse was financially dependent on the member. A spouse includes the person at death to whom the member was married or with whom the member was living on a genuine domestic basis in a relationship as a couple or in a relationship that is registered under a law of a State or Territory (whether of the same sex or a different sex).
Former spouses are dependants for tax purposes but not for SIS.
This includes any person, regardless of age, who at the member's death was the member's natural, step, adopted, ex-nuptial or current spouse's child, or someone who is a child of the person within the meaning of the Family Law Act 1975.
A dependant for tax purposes does not include a child age 18 or over.
A person ceases to be a stepchild of a member when the legal marriage of their natural parent to the member ends (see ATO ID 2011/77).
Ben's wife Shirley passed away recently. They have a son, Troy (35 years old) and Shirley had a daughter, Annie (45 years old), from a previous marriage. Even though Annie considers Ben to be her father, Ben has never legally adopted her because Annie and her biological father are in contact a few times a year.
After Shirley's death, Ben amends his existing superannuation binding nomination and nominates Annie and Troy as equal beneficiaries of his superannuation death benefit.
Ben dies a year later. The trustee of his super fund determines that Annie is not a dependant for super purposes and therefore not a valid nominee because Annie ceased to be Ben's stepchild when Shirley died. The trustee therefore determines in this case to pay 100% of the benefit to Troy as he is still a valid recipient.
As a result, Ben's estate planning needs were not met and Annie will not receive money that she thought she was entitled to.
For both SIS and tax purposes, a dependant includes any person who was financially dependent on the member at the time of the member's death. However, the degree of financial dependency required varies for SIS and tax purposes.
From a SIS perspective, the Superannuation Complaints Tribunal (SCT) has clarified that a potential beneficiary can qualify as a financial dependant if they were receiving financial support from the deceased member at the time of death. The SCT also confirmed that there is no requirement for the beneficiary to be fully dependent on that financial support, or for the beneficiary to need the financial support that was being provided by the deceased.
In contrast, for tax purposes the ATO has taken the view in a number of private rulings that a potential beneficiary would be a financial dependant if they were unable to meet their basic daily necessities (eg shelter, food, clothing, etc) without the financial support which was being provided by the deceased member at the time of death. In its view, financial support that merely supplements a beneficiary's income and improves their quality of life would not qualify the beneficiary as a financial dependant.
It is therefore possible that some partially dependent beneficiaries may be a dependant for SIS purposes, while failing to qualify for a tax-free death benefit for tax purposes.
A dependant includes a person who was in an interdependency relationship with the deceased member at the time of death. An interdependency relationship between two people is characterised by:
- a close personal relationship
- living together
- financial support
- domestic support
- personal care of a type and quality above the care and support that might be provided by a mere friend or flatmate.
An interdependency relationship may include a partner who does not meet the definition of a spouse. An interdependency relationship may also exist where there is a close personal relationship between two people but they do not live together; where they provide financial support, domestic support or personal care due to one or both of them having a physical, intellectual or psychiatric disability, or they are temporarily living apart due to one (or both of them) temporarily working overseas or serving a gaol sentence.
Examples include same sex couples, an adult child residing with and caring for an elderly parent and sisters residing together.
In establishing whether such a relationship exists, all of the circumstances of the relationship are taken into account, including (where relevant):
- the duration of the relationship
- whether or not a sexual relationship exists
- the ownership, use and acquisition of property
- the degree of mutual commitment to a shared life
- the care and support of children
- the reputation and public aspects of the relationship (such as whether the relationship is publicly acknowledged)
- the degree of emotional support
- the extent to which the relationship is one of mere convenience
- any evidence suggesting that the parties intend the relationship to be permanent
- the existence of a statutory declaration signed by one of the persons to the effect that the person is, or (in the case of a statutory declaration made after the end of the relationship) was, in an interdependency relationship with the other person.
Last modified: Wednesday, July 24, 2019