Neal Dallas, director of businessDEPOT, said on a recent Accurium webinar that there is a disparity between what the ATO considers stepchildren and what happens legally regarding death benefit payments.
Two different views under separate regulations define the relationship of a stepchild to a member for superannuation purposes.
The first ATO ID 2011/77 stipulates that the relationship ends where the marriage of the child’s natural parent to the member ends, or on death or divorce. However, this is inconsistent with family provision legislation.
The second is D19-2023 SCT which allows the stepchild relationship to continue beyond death of the natural parent and is consistent with family provision legislation.
“It is a really difficult area because the ATO position is the cleanest position, but it’s the harshest position as well,” Dallas said.
“The SCT position seems to be more aligned with whether someone was a stepchild after their natural parent had died and their stepparent was still alive, and they would say ‘Yes, they are my stepchild’. However, that’s not the position of law as far as the ATO is concerned. We are in no-person’s land at the moment where we’ve got these conflicting arrangements and what we need is some certainty.”
Mark Ellem, head of education for Accurium, said it is an important issue that advisers and accountants should make clients in blended families aware of when deciding on their beneficiaries.
He said following a set of procedures can help an adviser identify beneficiaries and determine their relationship to the deceased to ensure they meet all the criteria.
The first step is to contact the dependants to inquire about their intentions regarding the deceased’s benefit and to request information about their relationship with the deceased and details regarding their personal financial situation.
Second, reach out to the LPR to understand how the death benefit would be distributed if directed to the estate and gather information about the circumstances of the beneficiaries who would receive the death benefit in the case of an estate distribution.
It is also important to review any existing non-binding death benefit nominations made by the deceased member taking into account the preferences expressed in these nominations when assessing potential beneficiaries.
It is essential to scrutinise the contents of the deceased member’s will for indications of the deceased’s wishes regarding the distribution of the death benefit and to keep detailed records of the enquiries made, responses received, and any additional information gathered during the process.
“For death benefit payments you have to identify the beneficiaries and maintain accurate and updated documentation for each identified beneficiary, including relevant proof of relationships, financial dependency, proof of requirements for interdependency relationship,” Ellem said.
“This information is probably held by the accountant or adviser, and a lawyer may be asked to give some advice about it as well.”
Regarding stepchildren, Ellem continued that if there is a strained relationship, it usually falls on an adviser to be an intermediary and to gather the relevant information.
“So if someone says they are a dependant they would have to provide evidence of the payments for domestic or financial support, and of a close personal relationship,” he said.
“Just saying it out loud doesn’t make it so and if someone’s alleging it, it’ll be on them to produce that evidence. Additionally, if someone’s alleging it and no one has asked them for that evidence, you can’t just dismiss it. You might have to go down the pathway of asking them to give information and evidence that will meet the four factors for dependancy.”
