Fine line between dependants and interdependency can dictate death benefits
The definition of an interdependent relationship in relation to death benefit payouts can make the difference around who gets paid and who doesn’t, says an SMSF expert.
“Just because the super law says you can pay to a particular dependent or to the state, don’t assume that the funding rules allow you to [do that],” said Annie Dawson, senior technical SMSF specialist at Heffron.
Under SIS rules, when you die your super can only be paid to your dependants, your estate (where it will be dealt with under your Will), or some combination of these.
The only time your super can ever be paid to someone else is if you don’t have any dependants and no estate is formed on your death, which is very rare.
A spouse (including a de facto or same sex partner) is always classified as a dependant and children and your spouse’s children are also dependants, no matter how old they are.
It is the other two categories of dependents that can cause some confusions, said Ms Dawson, especially in terms of inter-dependence.
The two other groups of people who might be considered dependants are anyone who is dependent on the member in the ordinary sense, such as someone who relies on them financially to meet their usual costs of living, or someone with whom the member may have an “interdependency relationship”.
“This is another term with a specific meaning. It generally includes anyone other than a spouse or child with whom you have a close personal relationship and where one or both of you provide financial support, domestic support and personal care to the other,” Ms Dawson said.
“We didn’t always have a concept of a spouse including a same-sex couple and we used to have to rely on our interdependency relationship to pay to a same-sex couple.”
Ms Dawson said although an interdependency relationship is not as common as it once was, it still refers to where the deceased member and a beneficiary had elements of a relationship. She said there are four criteria that must be met to meet this standard.
“The deceased and the beneficiary had to have had a mutual commitment to a shared life,” she said.
She said the rules were put into the SIS Act to account for de-facto relationships, and same-sex marriages but there is also the situation where a parent and a child can be regarded as being in an inter-dependency relationship.
“That relationship has to go beyond what you’d expect in a normal family relationship,” she said.
It does not include children who may come home to live with the beneficiary for financial reasons or convenience but more in circumstances where the child or the parent has a terminal illness.
“Potentially there’s an ongoing commitment to support but you have to show that it’s beyond the normal family relationships,” she said.
“It might be, for example, where you’ve got a child who has an illness, whether physical or mental, that means it’s really not viable for them to leave home.
“There’s a permanence to that relationship. It’s never expected that they will move out and form their own family and life beyond that one that they’ve formed with their parents, but it’s a very, very specific set of circumstances.
“Sometimes the other place we look to see where we may pay a death benefit is to see if the beneficiary qualifies as a financial dependent – someone who’s financially dependent on the deceased.
“What we’re looking for there is whether the beneficiary needed the support of the deceased member to meet their daily needs? It needs to be ongoing and continuous support and it needs to be that they were reliant on the deceased support, that it isn’t just topping up so they’ve got extra income to spend if they would like.”
