There are more and more blended families in Australia. Superannuation is generally not of concern within this family category, but there is one cause for concern which needs to be considered when looking at life insurance inside of super.
In most cases, a step child will be considered a “child” for SIS purposes and can therefore directly receive superannuation death benefits from a step-parent. However, the SIS Act and regulations do not define the term “step child” and the ATO have confirmed that:
a step-child ceases to be a ‘child’ of a step-parent, if the natural parent dies or divorces the step-parent.
In this case, to be a dependant, the individual would need to be a financial dependant or in an interdependency relationship with the member or an adopted child of the member.
What does this mean for you?
Where someone separates with a partner as a result of death or divorce and a step child is involved, it will be essential to review all superannuation nominations (This is the beneficiary form you fill out on the super declaration with your employer) to ensure all the nominated beneficiaries are still SIS dependants.
Quick Case Study
Ken and Barbie had been married for 25 years when Ken passed away recently. They have one child (Jenny) who is 22 and Ken
also had two daughters, Megan (30) and Heather (33) from a previous marriage. The three girls all lived with Ken and Barbie
until they left home.
Barbie always considered the three girls as her daughters and after Ken died, she changed the BDN on her super fund to
nominate Jenny, Megan and Heather as equal beneficiaries in the event of her death.
Two years later, Barbie dies. Her superannuation fund deemed that her Beneficiary Nomination was NOT valid as 2 of the nominated beneficiaries
(Megan and Heather) were not SIS dependants as the child relationship ended when Ken passed away. The trustee
determined that 100% of the death benefit should be paid to Jenny – the only SIS dependant. This was not the result Barbie
had wanted.
Solution
In this case, to ensure her three daughters all received equal shares of her superannuation, Barbie could have nominated:
– Her legal personal representative as the beneficiary and the super funds would be distributed via her will;
– Jenny to receive 33% of the death benefit with balance to go to her legal personal representative;
– Jenny as the sole beneficiary under a BDN and Megan and Heather to receive other non-super assets via the estate.
If you are in a family structure where step-children are involved and would like advice on the matter, please Contact Us
and we can help with structuring your insurance so it meets your needs. We can also put you in touch with our trusted legal advisers.