Legal Tip 290: Attacking Superannuation on Death

Discussion in 'Superannuation, SMSF & Personal Insurance' started by Terry_w, 10th Jun, 2020.

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  1. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    After a person dies their superannuation will have pass to either the estate or to or more of their dependants.

    Whatever happens to it those ‘missing out’ can challenge or attack it. This could be done via several different ways such as:

    a) Superannuation Complaints Tribunal

    The decision of a trustee of a superfund can be challenged in the SCT or the Superannuation Complaints Tribunal. The tribunal will look at al the potential beneficiaries of the superannuation and their circumstances and the circumstances surrounding the decision of the trustee. They can then change this decision.

    Note that the SCT has no jurisdiction over SMSFs.

    b) Supreme Court

    Similar to the SCT but much more costly the Supreme Court can look at the decisions of the trustee of a SMSF and a non SMSF Superfund. There are a number of grounds under which this could happen such as undue influence, bias, conflict of interest.

    c) Invalid BDBNs

    Binding Death Benefit Nominations are often invalid. They might be defective in some way such as not being witnessed by 2 witnesses, being witnessed by someone inappropriate, not being dated, being worded incorrectly, not worded as required by the deed.

    d) Attacking the Will

    If the superannuation is passed to the estate the will of the deceased could be attacked. There are many ways this could happen and if the will is ineffective a previous will may be resurrected, or the intestacy laws will apply and this will lead to a different outcome.

    e) Notional Estate Orders

    If the deceased or the superfund have any connection to NSW then a notional estate order under the Family Provision Sections of the Succession Act is possible. This is where the court can deem super to be part of the estate of the deceased and someone making a Family Provision claim can make a claim on it – if the other assets of the deceased are not enough to meet their claim.
     
  2. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    https://www.afca.org.au/media/614/download#:~:text=Most superannuation fund rules require,nomination indicating the member's preference.

    AFCA not the SCT now handles compliants of this nature. The trustee may be obligated to follow its own rules established under its deed and its own constituent documents. Provided the trustee follows the fund rules correctly a decision may be valid despite it seeming to be unfair.

    eg Fred dies. He has three adult kids aged 20, 26 and 30. The 20 year old (Peter) is a full time student who does not work residing with Fred at his death. Freds will says his estate is to be shared by all three. The elder siblings are married and work and live interstate. Fred had nominated his wife berth as beneficicary on his death. Bertha passed away 6 months ago. The nomination (binding and non lapsing) is considered to be invalid and fails to address a Plan B. Peter may be a SIS dependant and eligible to receive a death benefit. Freds will is of no effect for the trustee choice and if the trustee pays Peter then the estate will not receive a death benefit to be shared. The trustee may need to choose Peter OR the estate OR some combination based upon how the super fund rules require the trustee to choose.
     
    Last edited: 10th Jun, 2020
  3. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    The SCT can still change a valid trustee decision though.
     
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  4. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    Only if it was prior to 1 November 2018 AND the complaint was also lodged before that date. SCT is being wound up and incorporated into AFCA to streamline all manner of financial complaints into one body. The SCT had jurisdictional limits which meant multiple bodies often handled one complaint. And AFCA is funded by adviser levies

    Superannuation Complaints Tribunal

    The effect of the migration also (slightly) broadens some complaints. Adviser complaints concerning super in a SMSF or ancilliary advice can now be lodged where SCT has its hands tied. AFCA handle complaints but not smsf trustee decisions which must be actioned through the supreme court as was the position under SCT
     
  5. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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  6. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    There are loads of conditions now and the notices requirement seem a initial hurdle to limit actions. Definately a issue for prompt legal advice. I recall a DBA Law article on this matter. The gist of it was to ensure the fund is notified of a potential benefit interest so that the notices are given. Then that decison may be reviewable.
     
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  7. Patrico1966

    Patrico1966 Well-Known Member

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    My brother has a super fund and I basically manage it for him due to him being on a disability pension-It is not a SMSF. I have been requesting the fund to accept my brothers binding death benefit nominations. He has no dependants so is nominating myself and his 2 sisters as beneficiaries. The super fund will not accept this and after some arguments and then some research I contacted the ATO who agreed with the funds decision. It goes to the trustee upon his death. I find this a shocking state of affairs as does my brother. What can be done about this? Do posters here have experience in this matter?
     
  8. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    It is not legally possible for the death benefits to go to you.

    They will not go to the trustee either but the trustee decides where it will go. Without spouse or chdren it will go to the estate and then out via the will or intestacy laws if no valid will
     
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  9. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    A will ? This is fundamental estate planning.. Of course when the super benefits are paid the beneficiary may be taxed. None of you are what is called a SIS Dependant. This is normally a spouse, a financial dependant incl a child aged under 25.

    I'm would have thought you cant ask the fund to do a single thing. You are a potential beneficiary. Certainly not the member even under POA. Many funds ignore POAs for trust law purposes.

    Not sure why the ATO woud have addressed this question. Its not tax law.
     
  10. Patrico1966

    Patrico1966 Well-Known Member

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    My understanding is that the ATO is No 1 in any money transaction conducted in this country and they quite readily answered my call on this issue, the ATO guy said they get 25-30 calls a day regarding this problem with funds. My issue is why cant the fund holders death benefits go to his family if he has no direct dependants if he so wishes? No-one seems to be able to give an answer to this question, especially the funds. This rule has to be changed. Talk about a time wasting exercise.
     
  11. SatayKing

    SatayKing Well-Known Member

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    Financial abuse by family members or others?
     
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  12. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    It can go to his family. But it has to go via the estate.
    The law is very clear. The trustee will not be able to give it to themselves unless they are a SIS Act dependant.

    Best not to seek legal advice from the ATO
     
  13. Patrico1966

    Patrico1966 Well-Known Member

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    That would be the only reason I could think of.
     
  14. Patrico1966

    Patrico1966 Well-Known Member

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    So to cut a long story short. Would the definite action in my brothers will i.e " I am leaving all proceeds of my superannuation funds to my only brother and my two sisters" or words to that effect cover the situation? We already have that in his will but are ready to revisit/update his will in the coming weeks, it has not been reviewed in the last 4 years.

    cheers
     
  15. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    No it wouldnt.

    As the trustee of the funds could potentially pay someone else other than the estate. He should seek legal advice, from a lawyer, about whether there are any death benefit dependants as without them the trustee would have no choice but to pay the estate. He could do a binding death benefit nomination as well.
     
  16. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    Not at all. This is one of the mistakes many make.

    Super law prescribes which dependants can be included and the trustee will apply its own rules to a decision about who to pay benefits to. Often it will ultimately go the the estate and in which case it may form part of the estate assets subject to a will....But care should be taken since super traces through a estate and some of it can be taxed in the beneficiary hands. (Concessionally)

    However its not that simple. If the member has a reversionary pension the benefits will be payable to that person BUT only if they are a sis dependant. If they arent then the nomination is ineffective. eg If they are dead the trustee may make their own decisions. The benefit may pass to the estate. Or to one child in the family who is the sole remaining sis dependant ! And some people have pension and accumulation accounts and both can be different. Or multiple funds with different outcomes. A mess.

    I recently saw the case of a terminally ill person who planned their will so that insurance bonds would pass to his children from his death insurance proceeds in super. However a binding death nomination made just 2 years ago meant super and life insurance proceeds bypassed the estate to his FORMER wife. A legal dispute by his current wife of 1 year followed and the trustee agreed to pay her the benefit as she was a valid SIS dependant where the former wife was not and the former wife didnt seek to claim any benefits- Fortunately the wife meet the request for the insurance bonds but if she didnt agree its possible his planning was to no effect. His kids could have missed out