Q & A – Who will receive my client's super death benefit?

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  1. April 2022

Find out what your peers are asking – based on real-life questions submitted to TechConnect.

Julie Steed, Senior Technical Services Manager

Q: My client Sally was involved in a workplace accident which resulted in a brain injury and she no longer has mental capacity. She had not made an enduring power of attorney or Will, nor had she completed a superannuation death benefit nomination.

She received a $3 million compensation payment that was paid to her super.

Following her injury, she lived with her sister and brother-in-law. Her sister was her primary carer and received a carer’s allowance. Her sister was also appointed as her financial guardian by the Victorian courts.

Sally has never married and has no children. She is estranged from her parents.

Sally’s super fund offers binding death benefit nominations, non-lapsing binding death benefit nominations and non-binding death benefit nominations. 

Who will receive Sally’s super death benefit?

A: In the event that a member doesn’t make a nomination, or their nomination is invalid, the fund rules require the death benefit to be made to the member’s legal personal representative (LPR). This has been a common feature of retail super funds for many years, particularly those that offer non-lapsing binding nominations. 

If Sally were to die, her benefit would be paid to her LPR. As she is unable to make a Will, her super death benefit would be distributed in accordance with the laws of Victoria. Her entire superannuation proceeds would be distributed to her parents. 

If Sally had been a member of a fund where the trustee could exercise discretion as to whom her death benefit could be paid it is possible that her sister would receive the benefit. Her sister would be expected to meet the definition of interdependency under SISA 10A(1). 

Two people 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.
Two people may still satisfy the interdependency definition if they have a close personal relationship but do not live together due to disability or temporary absence (ie overseas employment). Otherwise, it is important to note that all four of the interdependency conditions be met The definition of interdependency under s 302-200 of the Income Tax Assessment Act 1997 is identical meaning the payment to the sister would likely be tax-free.  

Otherwise, it is important to note that all four of the interdependency conditions must be met.

Where a trustee is able to exercise discretion, they would be likely to pay it to someone who met the definition of a superannuation dependant (spouse, child, financial dependant, interdependency relationship) before they would make a payment to the LPR. In addition, they would be required to undertake the death benefit claim staking process whereby all potential beneficiaries are identified and given the opportunity to object to the payment.

Understanding the death benefit payment rules of a fund is always important but particularly so where a client does not have capacity to make a nomination or a Will. 
 

More information

If you have any questions, or would like more information, please contact the IOOF TechConnect team on 1300 650 414.

Disclaimer
The information in this section of the website is intended for financial advisers only and is not to be distributed to clients. It has been prepared on behalf of Australian Executor Trustees Limited ABN 84 007 869 794 AFSL 240023, IOOF Investment Management Limited ABN 53 006 695 021 AFSL 230524, IOOF Investment Services Ltd ABN 80 007 350 405, AFSL 230703 and IOOF Ltd ABN 21 087 649 625 AFSL 230522 based on information that is believed to be accurate and reliable at the time of publication.