Stepchildren still a big ‘grey area’ in terms of death benefits
SMSF professionals need to take extra care where stepchildren are involved with estate planning, as certain aspects remain unclear.
It is still unclear whether stepchildren can be considered dependants after the death of the natural parent with a tribunal decision contradicting previous guidance.
Speaking at the SMSF Association Technical Summit, SMSF Association deputy chief executive Peter Burgess explained that in the past the industry worked on the assumption that where there is a stepchild and stepparent relationship and the natural parent has died, then that child is no longer a dependant of that step parent.
“There was an ATO interpretative decision that was very clear on that point, ATO ID 2011/77, which talked about the severing of the child and step-parent’s relationship on death,” explained Mr Burgess.
In this particular decision, the relationship between the step-parent and the natural parent ended in divorce before the death of the child’s natural parent.
The ATO stated in ATO ID 2011/77 that a child “ceases to be 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”.
However, Mr Burgess said a decision by the Superannuation Complaints Tribunal in D19-20-023 [2019] SCTA 149, turned the ATO guidance “on its head”.
“The SCT case states that that’s not really how it should work. [It says] that there is still that nexus there and that death shouldn’t sever that relationship and they can actually still be classed as a child in this particular scenario.”
“So we are back to grey now [on this particular issue].”
SMSF Association policy manager Tracey Scotchbrook said while this is entirely an appropriate position, it does raise some questions in terms of SMSF succession planning.
“It probably makes it a little bit more complicated. It’s just something to be really cautious of when you’re dealing with stepchildren,” said Ms Scotchbrook.
“Make sure you’re working with the lawyers to ensure that you’ve get everything structured right so that there are no nasty surprises out on the other side.”
Miranda Brownlee
Miranda Brownlee is the deputy editor of SMSF Adviser, which is the leading source of news, strategy and educational content for professionals working in the SMSF sector.
Since joining the team in 2014, Miranda has been responsible for breaking some of the biggest superannuation stories in Australia, and has reported extensively on technical strategy and legislative updates.
Miranda also has broad business and financial services reporting experience, having written for titles including Investor Daily, ifa and Accountants Daily.
