Blended Families and Stepchildren

The chances of blended families and stepchildren in Australia has increased significantly over the last 10-20 years. There has been several cases through the courts and Superannuation Complaints Tribunal dealing with member’s death benefits to children of a deceased person’s former spouse.

The Australian Taxation Office has released ATO ID 2011/77 which deals with the “Payment of death benefits to former stepchild: meaning of ‘child’ and ‘dependant’. The interpretative decision from the ATO gives their position on if a person is a ‘stepchild’ of a member of a self-managed superannuation fund and therefore a ‘dependant’ of the member if the legal marriage of the person’s natural parent to the member has ended.

The position of the ATO is that a person ceases to be a ‘stepchild’ for the purposes of being a ‘dependant of a member under superannuation regulation 6.22, when the legal marriage of their natural parent to the member ends. Regulation 6.22 of the superannuation regulations specifies the range of persons in whose favour the benefits of a member of a regulated superannuation fund may be cashed after a member’s death. The regulation provides that death benefits must be cashed in favour of a member’s legal personal representative and/or one or more of the member’s dependants.

The term ‘dependant’ is not defined in the SIS Regulations and is therefore given the same meaning as in the Superannuation Industry (Supervision) Act 1993 (SISA). SISA defines ‘dependant’, in relation to a person, as including ‘the spouse of the person, any child of the person and any person with whom the person has an interdependency relationship’. The term ‘dependant’ also includes someone who is financially dependent on a person. The term ‘stepchild’ is not defined in either SISA or SISR and is therefore give its ordinary or common law meaning. At common law, a child ceases to be a stepchild of a step-parent when the relationship between the child’s natural parent and the step-parent ends, that is, on the death of the natural parent or the divorce of the natural parent from the step-parent. This position originated in the case Re Burt [1988] 1 Qd R 23 and has been followed in a number of judicial decisions since.

The Superannuation Complaints Tribunal has also taken the common law position when dealing with complaints on the payment of death benefits. Consistent with the above approaches the ATO’s view is that the relationship of stepchild to step-parent is severed when the marriage between the natural parent and the step-parent ends, that is, on the death of the natural parent or on the divorce of the natural parent from the step-parent.

Death benefits may still be able to be paid to a former stepchild under SIS Regulations if an interdependency relationship existed or if the former stepchild was a financial dependent at the date of death of the step-parent.

It is important following this interpretative decision from the ATO that members of self-managed superannuation funds review their estate plan’s within their fund and the trust deed of the fund in relation to death benefit payments. Remembering that a members personal Will does NOT deal with self-managed superannuation benefits unless the benefits are paid to the estate of the deceased. This is an area we see extremely often, whereby personal Wills of members try to deal with superannuation benefits an fail. reference Katz v Grosman.

Important measures for members is to review consistently estate plans in the fund, review the trust deed of the fund and relevant death benefit documentation and seek appropriate advice to deal with self-managed superannuation benefits.