Modern Family – super law needs to catch up

Australian Financial Review

18 December 2016

Sally Patten

Lawyers and financial advisers are calling for changes to superannuation law to prevent super bequests being awarded to short-term partners and step- children and to avoid lengthy disputes over inheritances.

Experts say the definition in super law of a dependent to whom a super inheritance can be paid is too broad and is inconsistent with family and estate laws.

Super law is also written in such a way that a parent who remarries may find their super savings will not be inherited by their offspring, but may all go to their adult step-children if they fail to plan meticulously.

“The definition [of dependency] is way too lose,” said Mark Draper, an adviser at GEM Capital. “People are driving a truck through it. It’s a dog’s breakfast at the moment.

Blended families are more common than when The Brady Bunch went to air in the 1970s but not every blended family lives happily ever after and the law needs to catch up

“Other aspects of law are far more prescriptive about the legal requirements to prove a relationship existed.”

Peter Bobbin, managing principle of Argyle Lawyers, said: “There are lots of cases of children missing out on their parent’s super.”

He said the issue was becoming “more problematic” because of the rising incidence of blended families.

In the 12 months to June, 22 per cent of all complaints received by the Superannuation Complaints Tribunal related to the distribution of super inheritances, more than double the next most common complaint.

Super is often the biggest or second biggest component of an individual’s assets, so large sums of money are involved.

Lawyers pointed out that, on a person’s death, super is treated differently from other assets because it does not form part of an estate and so cannot be provided for in a will.

Mr Draper said he had seen a number of cases that wouldn’t pass the pub test. “In one instance, a woman died of cancer. Her husband later passed away but, by then, had been living with another woman for less than 12 months. His girlfriend contends, so far successfully, that she should be granted 50 per cent of the dead husband’s super fund, in preference to paying all the proceeds to the 10-year old daughter of the previously married couple.”

In another instance, the super savings of a 19-year-old gay man were awarded to a partner of three weeks. The payment was appealed and eventually largely overturned, but the partner still received 30 per cent of the super inheritance.

One of the problems with the super law is the requirement that super inheritances must be paid to either a spouse, a child, someone who is financially dependent, or someone with whom there is a relationship of “interdependency.”

Interdependency is described as having a “close personal relationship” and living together, providing financial support and providing “domestic support and personal care”.

Unlike in family law, there is no minimum length of time for a couple to live together before they are regarded as having an interdependent relationship. “After one night living together, you might have a higher entitlement to super than the kids,” Mr Bobbin said.

Under family and estate law, in most states a person must have lived with someone for two years or have a child together to be considered a spouse.

Another problem is that, under usual circumstances, adult children can receive a super inheritance, but not adult step-children, unless (rarely used) provisions are made to pay a super inheritance into the estate.

Take a couple with adult children who split and the husband remarries. He dies and leaves his super to his new wife, who, upon her death, is unable to pass on his super savings to her step-children, in other words, the husband’s adult offspring. This is because, under super law, adult step-children are for the most part not recognised.

Mr Bobbin argued that one possible solution would be to allow super savings to be paid to anyone, rather than have it defined in law.

“You could make it so you can name whoever you like on a binding death nomination,” Mr Bobbin said, referring to the form that directs a super fund trustee to whom a super inheritance should be paid.

“You could expand [super law] or the regulations to make it clear how super can be dealt with in a modern family,” he said.

At the very least, said another lawyer, “we need more harmony between super and laws relating to challenging estates”.

One expert noted that super fund trustees were required to act fairly and reasonably when determining who should receive a super inheritance and that different people would have different views as to what constituted a fair distribution. Trustees could also use their discretion as to who should be paid.

The government said it had no plans to change the law but was open to input to ensure it was up to date.

“There are no current plans to change the law in this area, particularly given the broad discretion trustees currently have in the distribution of superannuation benefits upon death,” a spokesperson for Minister for Financial Services Kelly O’Dwyer said.

“However, the government is open to constructive suggestions around the laws of benefits through superannuation funds to ensure they remain in step with societal norms.”