Video Transcript
My name is Chris O’Connor, I am the director of O’Connor Ruddy & Garrett Solicitors. Today, this video is to discuss superannuation in the context of estate planning and particularly blended families. There can be unintended consequences that arise where the control of a self-managed superannuation fund is not carefully considered as a part of a comprehensive estate plan.
It is a common misconception that people think, that superannuation entitlements at death automatically form part of someone’s estate and are distributed in accordance with the terms of your will. This is not the case. Superannuation is a separate asset and is dealt with independent of the terms of the will.
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Superannuation death benefit nomination
Normally, superannuation funds will send you forms, normally called a ‘death benefit nomination’ form or similar. Where you nominate a beneficiary for your superannuation death benefit entitlement. This form has the same effect as a will, only, for your superannuation. What this form binds the trustees of your superannuation fund to pay the death benefit to who you nominate. Depending on the superannuation fund, most death benefit nomination forms are only valid for three years, and after such time, they will lapse.
When a death benefit nomination is either not made, made although the beneficiary you have nominated is not valid, or it’s expired, then the trustee of the superannuation funds has discretion as to where to pay the death benefit. It is normally at this point that a dispute arises over someone’s superannuation death benefit entitlement.
Eligibility to claim superannuation entitlement
In order to be eligible to claim superannuation [entitlement], you have to be, what they call, a dependent person. this includes:
- A spouse (whether legal or a de facto or whether opposite or same-sex)
- A child, including an adopted child, an ex-nuptial child, a stepchild or child of the
deceased member’s spouse. - Any person who had an interdependency relationship with the deceased member.
- Any person who was financially dependent (whether wholly or partly) on the
deceased member.
In each case, the meaning of dependent will depend on the governing rules of the relevant fund. The fund rules do not have to permit the distribution of a death benefit to all possible types of dependents under superannuation law, and they also specify a certain level of dependency in order to be a person of eligible dependence.
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Superannuation entitlement disputes
There has been a significant increase in superannuation entitlement disputes given the complexities in people’s family arrangements and this issue is highlighted more so with blended families. For example, some people have self-managed superfunds. So that means, they are trustees of the SMSF. So on the death of one of the spouses, the surviving spouse will appoint, for example, one of their biological children to be a co-trustee with them. Most times, No death benefit nomination form was completed. So once the surviving spouse then passes away, the remaining trustee (being the child) can misuse their power and distribute the death benefit to themselves, which in most cases is inconsistent with their parent’s intentions.
Court case example
There have been cases that have gone before the court where a child has been the sole trustee of an SMSF after their parent has passed away, they distributed the death benefit from the self-managed superfund to themselves personally and have not distributed any benefit to their siblings or step-siblings. In some of those cases, the court held the decision to pay themselves was completely legal.
This just illustrates that there was a lack of considered estate planning when looking at the succession issues of a self-managed superfund or any superannuation fund for that matter. In order to ensure your superannuation is dealt with in accordance with wishes and your overall estate plan, please contact our office for a free initial consultation.