Lawcovernotes July 2018

For solicitors involved in the administration of estates, or in family provision litigation, superannuation can present a number of traps for the unwary. In this article we look at two of the lessons to be learned from recent claims and cases. Trap 1: Don’t assume the superannuation death benefit will form part of the estate One recent claim was made against a solicitor acting for the executor of an estate in relation to a family provision application. The applicant was the spouse of the deceased and the matter was settled for a lump sum amount, in the expectation that the superannuation death benefit would be paid into the estate. As it happened, the trustee of the super fund made a determination to pay the superannuation death benefit directly to the spouse, which resulted in the other beneficiaries of the estate receiving considerably less than anticipated. Although many clients expect that superannuation will fall into the estate and be dealt with in accordance with the will, this only happens in some instances. As a general rule, and subject to the terms of the superannuation deed, any reversionary pension, and any valid binding death benefit nomination, it will be at the discretion of the trustee of the superannuation fund whether to pay the death benefit to the legal personal representative of the member’s estate, or to one or more of the member’s dependents. Of course in New South Wales irrespective of the trustee’s determination, superannuation death benefits can be designated as notional estate for the purpose of satisfying a family provision claim. Care needs to be taken when drafting the terms of settlement of a family provision claim if it is not clear who the recipient of the superannuation death benefit will be at the time of settlement. Trap 2: Don’t ignore superannuation death benefits tax payable by the estate If superannuation death benefits are paid to the legal personal representative and then to a “death benefits dependant” as set out in section 302-195 of the Income Tax Assessment Act 1997 no tax will be payable. This definition covers spouses, children under the age of 18 years, persons who are dependent on the deceased member and persons who are in an interdependency relationship with the deceased. If, however, any part of the superannuation death benefit is payable under the will or on intestacy to a beneficiary who does not fall within that definition, the legal personal representative will be responsible for declaring and paying tax on the taxable component of the death benefit. The tax is a liability of the estate and will reduce the size of the estate available for settlement of family provision claims and distribution to beneficiaries. In Alexander & Alexander v Oliver & Anderson [2017] QSC 224 the solicitors acting for executors in relation to the settlement of a family provision claim were criticised for failing to advise of and take into account the liability of the estate for tax on superannuation death benefits paid to the estate. In other cases, the estate has been distributed to beneficiaries without paying the superannuation death benefits tax. In those instances, the executor is personally liable for the payment of that tax and, if unable to recover it from the overpaid beneficiaries, may seek to recover the loss from the solicitor instructed in relation to the administration of the estate. Jen McMillan Legal Practice Consultant 15.