While many people make a Will thinking they can leave their estate assets, including their superannuation benefits, to any person they choose, the Superannuation Industry (Supervision) Act 1993 (Cth) (Act) defines who qualifies to receive a superannuation death benefit following the death of a fund member.
An important consideration of any estate plan is deciding on who will receive your superannuation benefits following your death, and ensuring the beneficiaries nominated qualify as ‘dependant’ to receive your death benefits.
Who is a ‘dependant’ of a deceased superannuation fund member?
For the purposes of the superannuation law, a ‘dependant’ is defined as:
- the spouse of the person;
- any child of the person; and
- any person with whom the person had an ‘interdependency relationship’.
Spouses and de facto partners
For the purposes of the Act, ‘spouse’ includes:
- another person (whether of the same sex or different sex) with whom the person was in a relationship registered under a State or Territory law. This includes married couples, together with people who may have registered their relationship as being one of a domestic nature; and
- another person who, although not legally married to the person, lives with them on a genuine domestic basis in a relationship as a couple.
Unlike the provisions of the Family Law Act 1975 (Cth), which requires persons to have been in a de facto relationship of at least two years duration, there is no stipulated relationship duration requirement included in the superannuation law for claims made by a de facto or domestic partner for superannuation death benefits.
Children of a deceased fund member
For the purposes of the Act, ‘child’ includes:
- an adopted child of the deceased member;
- a step-child of the deceased member;
- an ‘ex-nuptial child’ – i.e. a child of the deceased member that was born out of wedlock; and
- a child of the deceased member’s spouse (which, as stated above, includes a de facto partner).
Step-children
The definition of ‘child’ within the Act is inclusive, while there is no definition within the Act of ‘step-child’.
The Australian Taxation Office (ATO) has released interpretative decision ATO ID 2011/77, which states that a step-child ceases to be a dependant of a deceased superannuation fund member upon that step-child’s parent’s divorce from the member. If the marriage ends, either by divorce or the death of the biological parent of the step-child, the step-child/step-parent relationship will cease.
It is worth bearing in mind that the ATO’s view on this issue is not legally binding, and cases involving the interpretation of ‘step-child’ as found in other legislation has held that the step-child/step-parent relationship survives even after the step-child’s biological parent has died.
Persons in an ‘interdependency relationship’
The Act provides that two persons, whether or not related by family, have an interdependency relationship if:
- they have a close personal relationship; and
- they live together; and
- one or each of them provides the other with financial support; and
- one or each of them provides the other with domestic support and personal care.
The Act also provides that two persons can have an ‘interdependency relationship’ if they have a close personal relationship but don’t satisfy the other three requirements listed above if one or both suffer from a physical, intellectual, or psychiatric disability, which is the reason for them not satisfying those requirements.
Where the superannuation death benefit is received by a dependant
The superannuation death benefit, which can be paid to the beneficiary either by way of a lump sum or by way of pension, becomes the legal property of that beneficiary and does not form part of the estate of the deceased fund member.
If the superannuation death benefit is to be paid to a person who fits within the definition of a ‘child’ of the deceased member (as set out above), and that child is under the age of 18 or suffers from a disability, then any such benefit will be held by that child’s parent or legal guardian. If the child does not suffer from a disability, the child will be able to access the death benefit upon turning 18.
Death benefits tax may be payable on the death of a member. Whether Death benefits tax is payable will depend on the age of the member, the components of the death benefit and the relationship of the beneficiary to the member, that is if they fit within the category of a taxation dependant. It is important to note that a Superannuation Law dependant is different to a taxation dependant.
Where the superannuation death benefit is received by a legal personal representative
In addition to being able to pay a death benefit to a superannuation law dependant, the Trustee of a superannuation fund may also pay the member’s death benefit to his or her Legal Personal Representative (LPR) (that is his or her estate to be dealt with by the member’s Will). Where a superannuation death benefit is paid to a deceased person’s legal personal representative, it forms part of the estate of the deceased person. It is then distributed in accordance with the terms of the deceased person’s Will, or otherwise pursuant to the applicable laws of intestacy, where there is no Will.
Importantly, where a superannuation death benefit forms part of a deceased estate, then:
- Section 205 of the Life Insurance Act 1995 (Cth) protects the proceeds of a life insurance policy paid to the deceased person’s estate from creditors (unless an express instruction is contained in the deceased person’s Will); but
- the death benefit (together with other assets forming the estate of the deceased person) can be subject to claims by disappointed beneficiaries seeking further provision from the estate.
Consequently, there may be benefits of ‘protecting’ superannuation where a claim for further provision is possible following the death of a fund member.
Parents, siblings, and grandchildren
Unless a fund member’s parent, grandchild, or sibling is in an ‘interdependent relationship‘ with the fund member, they cannot directly receive a superannuation death benefit. The only way in which a fund member can gift their superannuation death benefit to their non-dependent parents, siblings, or grandchildren is to ensure their death benefit is paid to their LPR, this can be dealt with as follows:
- execute a binding death benefit nomination in favour of their legal personal representative; and
- execute a Will which leaves a specific gift of any superannuation death benefit paid to their estate to such persons.
Conclusion
Consideration of who can receive your superannuation death benefits is a crucial aspect of your estate plan.
Seeking specialist advice about your superannuation within the context of your estate planning objectives is paramount but is frequently overlooked by individuals and advisors alike, who often focus on just ‘making a Will’.
Contact us
For tailored advice to meet your estate planning objectives, including your superannuation benefits, whether held in retail or industry funds, or self-managed funds, please contact our Wills, Trusts & Estates team.
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