Most readers would be aware that Australia has a Compulsory Superannuation regime. It is covered by Commonwealth law and has its own legislation. This differs from the probate laws which are all State based.
Further as the original essence of super law was to provide retirement benefits it is inherent in the Act and the individual trust deeds that govern each fund, that death benefits should not form part of the estate. Amongst other factors this means that creditors cannot get hold of these monies…
The differences between the laws and the average persons understanding of how super works is generally quite wide and most people, including experts do not appreciate the complexities involved. The Superannuation Complaints Tribunal received 425 complaints in the June quarter of which 35.5% related to death benefit claims.
A person can be nominated by the deceased member to receive the benefit in writing. This benefit can be binding or non-binding, although I am unsure who would actually wish to officially make a non-binding nomination…
In a recent case heard at the Tribunal a defacto spouse complained about the decision of the trustee to treat the nomination by the deceased as non-binding. In summary the deceased and two witnesses completed and signed the binding nomination form. It was dated on the same date as being signed by the witnesses, but the deceased inadvertently wrote his date of birth as the date of signing. The form specifically stated that the witnesses must sign and date the form on the same date as the member and that is the dates are different then the form is invalid. The trustee actually wrote back and informed the member that the nomination was invalid and a new form was required. However he did not complete the new form and died. As there was no binding nomination the trustee decided to pay 100% of the death benefit to the legal personal representative of the estate. The deceased had also left a Will which appointed his sister as his executrix and bequeathed his house (already owned as joint tenants with his de facto) his pension and bank accounts and some personal items to his defacto, and he also provided in his will that his sons receive in equal shares his superannuation. The will was made after his attempted binding nomination was made.
The Tribunal decided that the trustee was fair and reasonable to decline to treat the nomination as binding as it had no ability to use discretion under its deed as to whether a form was completed correctly and that it had in fact advised the member that the form was incorrectly completed.
Whilst impossible to set out the complete tax implications on Superannuation payments, suffice to say that as a retirement benefit there are some considerable tax concessions in payouts. However, this is very reliant on the fact of the payment being made to a dependent or non-dependent. There are various factors that are considered as to whether a person is a dependent. The parties must have a close personal relationship, reside together, 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.
In one recent case the trustees made the benefit payment to the parents equally as non-dependents. The parents complained. Ordinarily a parental relationship does not meet the criteria of an interdependent relationship. The parents disputed this as they believed they did meet the criteria in the relationship they had with their daughter. There was no dispute as to the actual payment tot he parents, only as to the dependency issue. The tax effect can be 20-30% of the benefit payment or zero%!!
The daughter was living with her parents, had contributed to the household financially, enjoyed a close personal relationship and had provided domestic and personal support. However the Superannuation Regulations also provide a statement for consideration of trustees regarding children and parents and in particular notes that generally it would not be the intention of children to permanently commit to a shared life with their parents. They may eventually move out. The Tribunal therefore confirmed the trustees decision.
This last case is something that I see more of at APEARS. Quite a few younger New Zealanders have come to Australia and worked here therefore obtaining a superannuation benefit. Mostly with the funds there is a life insurance component payable on their death. Further the deceased generally has no personal relationship and the parents are the only beneficiaries. The tax office because of this can gobble up quite a large percentage.