Argyle Lawyers managing principal Peter Bobbin – who reviewed some 500 Superannuation Complaint Tribunal decisions – says the single most common mistake is the failure to address a second or subsequent marriage.
Mr Bobbin said individuals believe it will never come up or it will never be a problem, and they therefore do not think about it. Some people do not even know about the potential estate planning outcomes that could occur.
“There is an increasingly growing epidemic of super death disasters. Particularly involving subsequent marriage relationships,” he said.
“Problems can arise in ‘blow-in’ situations where mum or dad have entered into a new relationship, perhaps their previous partner has died, and they just don’t think about the fact their new partner can claim on their super and they do nothing about it and the new partner does. Step-children can also become an element in it.”
In one of the tribunal cases, Mr Bobbin said a father had died after he had remarried and done nothing about directing where his super went and the super trustee gave 100 per cent to the father’s wife.
“The dad’s children complained on the basis that well, if she gets the money, then when she dies it’ll go to her kids,” he said.
“The tribunal said the trustees must not consider the ponderables such as how long will the second wide live for, what her financial needs may be in the future and whether or not she’ll choose to give the money to her own children or somebody else.”
Mr Bobbin said the children can end up missing out in these scenarios, with the money going to the other family.
“It is the single most ignored part of estate planning by people.”
Well, take a second marriage plus Alzheimer’s and you get a perfect mess. Or take a formerly competent super trustee who has been medically drugged into a fog….
As we live longer these problems are increasing. Good enduring powers of attorney and careful appointment of executors and successor SMSF trustees are a good start.
The issue is obviously who gets control of the fund upon death of a member. Don’t mix the super balances of spouses/partners in blended family situations is the easiest option. Harder in practice than in theory. But at the very least you should be making clients aware of the potential outcomes. If they dont want to address then at least you can document that you’ve raised it to cover your butt.
Valuable advice. The other risk I have spoken about at the SMSF annual conference is the threat of cognitive decline. Paul Gerrans at UWA and I have been trying to get ARC funding to investigate mechanisms to identify deterioration earlier. Having the right legal mechanisms in place might be the only option until deterioration can be identified earlier or a cure is found.
How do you correct this problem then?