Court ruling on presumptive death has implications for SMSFs
The findings of a Supreme Court case in South Australia this week have implications for the superannuation system regarding the declaration of the death of a person after seven years.
South Australian Supreme Court Justice Anne Bampton declared Mount Gambier man Ryan Anthony Chambers dead after he was last seen on August 24, 2005.
Mr Chambers was 21 when he travelled with his friend John Booker to India for a backpacking holiday.
He was last seen in the northern city of Rishikesh, where he was staying at the Ved Niketan Ashram, a yoga and meditation retreat.
His parents, Geoff and Dianne Chambers, made an application pursuant to r 68 of the Probate Rules 2015 (SA) to swear the death of a missing person in respect of whose estate a grant is sought – where a missing person has not been seen or heard of since 24 August 2005.
The application was for a grant of letters of administration in a form acceptable to the Registrar of Probates, the Registrar is directed to issue the grant.
The court filings indicated that Ryan’s estate contained an amount of superannuation, which according to Peter Bobbin, a consultant lawyer with Coleman Greig’s taxation team, would most likely have contained life insurance.
“In a superannuation sense this issue was the subject of a super complaints tribunal (now AFCA) matter,” he said.
“The complaint was that the super life insurance should have been paid out earlier than seven years.
“In that ruling (SCT Determination Number D02-03\277) it was stated ‘unfair and unreasonable to the Complainant for the Insurer, knowing of the circumstances of the disappearance of the Deceased Member, not to have determined at an earlier time what alternative methods of establishing proof of death may have been available’.
“The result was that the insurer was ordered to pay eight years interest on the super fund and insurer.”
Mr Bobbin said the issue was also the subject of the Malaysian Airlines MH17 crash that killed 38 Australian citizens and residents.
“The question is interesting for super, generally,” he said.
“The person is not dead so a death benefit is not payable. Life insurance is not paid. Their member account becomes stagnant. And the benefit account may lose its life insurance and be paid off to the Australian Taxation Office as lost member money.
“The ATO has recently said that there is $16 billion in lost super and I wonder how much would be aligned to this issue?
“As with this case, the super member can be retrospectively determined to be dead, but only in respect of the legal question that arises in legal proceedings.”
Mr Bobbin said the issue affect superannuation whether it is SMSF or non-SMSFS.
“It creates a hell of a problem in the SMSF area in having a situation where you don’t know if a person is alive or dead,” he said.
In recounted another case which involved a multi-member fund where the life insurance refused to pay out after the claimants waited seven years.
“The tribunal said they should not have waited seven years, that there could have been an application made earlier and they were again ordered to pay life insurance plus interest.
“The seven-year rule is not hard and fast.
“Generally, if someone goes missing and has multiple SMSF accounts the other people in those funds are going to know and do things to sort it out.
“The issue is more prevalent with single-member SMSF. The ATO is saying there is $16 billion in lost super and some of that would be because of this.
“Someone has gone missing and no one is connected to them that knows they have gone missing.
“In the SMSF territory, it is more complex, because no one really knows that annual returns are not being lodged and ATO chase it and declares it a non-complying fund but no effort is made to connect that to a name and trace it back from there. It is a big issue.”