Superannuation is often one of the largest assets a client owns, particularly if insurance is held inside the fund, and disputes over the payment of death benefits regularly occur.
It is important to discuss estate planning with clients and implement strategies to mitigate potential problems. This applies for all clients, regardless of age or account balance, and particularly to clients with a self-managed super fund (SMSF), when family members are likely to be left in charge of the decisions.
- To minimise disputes, advisers should discuss with clients:
- Who can potentially make a claim on death benefits
- Whom the client wishes to receive death benefits
- The options for death benefit nominations
- The trust deed rules for making a valid nomination
- The importance of having a will that includes clauses to cover the payment of superannuation death benefits.
With an SMSF, if things go wrong there is no recourse to the Superannuation Complaints Tribunal (SCT), but analysis of SCT case studies can help with understanding how things can go wrong.
Case D09-10/023
The deceased member was an 18-year-old man. He had not made a will, was not married and had no children. The superannuation fund trustee found he had no dependants under the Superannuation Industry (Supervision) Act 1993 (Cwlth) and paid the death benefits equally among his father, mother and brother.
However, the deceased’s girlfriend lodged a complaint with the SCT, on the basis that she was in an interdependency relationship with the deceased.
To prove this relationship, she needed to meet all four aspects of the interdependency definition and based her claim on:
- Close personal relationship – clearly met as they had been together for two years and had a sexual relationship.
- Living together – the girlfriend lived with her parents but the deceased often stayed over and they slept in the same bed. Three months before he died, he moved in on a more permanent basis and paid $70 per week board to her parents
- Financial support – she claimed that although they did not have a joint bank account or own joint property they paid expenses for each other from time to time, and in particular when either one was not working.
- Domestic support and personal care – she claimed they shared domestic duties.
The family members were not SIS dependants, so to receive death benefits they needed to prove the girlfriend did not meet the definition either. They claimed it was not a true de-facto situation and he only lived with her for convenience rather than a “commitment to a shared future life”.
This is an important aspect for proving the existence of an interdependency relationship.
The SCT found the girlfriend met the interdependency requirements and overturned the trustee decision. As such, the girlfriend was awarded full payment.
What’s interesting from the case?
There are several interesting points to note from this case:
- The definition of ‘interdependency relationship’ requires evidence of “a close personal relationship”, not of a de-facto relationship. The SIS definition of a relationship can be established after just one day of living together, which is different to the de-facto definition in family law provisions.
- Estate planning for young people (including children of SMSF clients) should not be overlooked. They may not have large balances but may have insurance cover. In this case, the disputed death benefit was for $131,437 of which only $1,537 was accumulated savings.
- Settling disputes can be a lengthy process. This case took two years to resolve. SMSF disputes need to go through the courts. Delays can be equally lengthy and far more expensive.
- Disputes will generally lead to fractures in family relationships.
How to protect clients
Estate planning issues and the payment of death benefits should be raised with every client, and the opportunity should be taken to raise issues for their children.
Ask your clients to identify all the people who could have a potential claim against their superannuation so they can decide who they want to receive payments, and identify where the problems could lie. From here, you will be in a position to help your client to develop solutions to minimise complications.
Getting death benefits to non-SIS dependants may be best achieved by having a will, and making a binding death benefit nomination payable to the estate. In situations like this case, further disputes can still arise if the girlfriend has the right under family law provisions to contest the estate however, proving de-facto status usually requires a longer period of cohabitation.
If the deceased member wanted his death benefits to be paid to his girlfriend it may have helped if he had documented the nature of their relationship with regard to financial support, domestic support and personal care to prove the interdependency.
