This week I have received many estate planning questions, especially in relation to super. The first two I have answered together, given their similarity:

Question 1

My understanding was that you could make a binding death benefit nomination in favour of an adult non-dependent child.

However, I recently read that was not possible – it was restricted to effectively a dependent (e.g. spouse/partner, minor child) or your legal personal representative (executor).

Which is correct? Thanks

Question 2

Can you please shed light on the workings of binding nominations in superannuation?

First, the information I read seems to say you can leave it to your children but, conflictingly, that nominees need to be dependents.

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My children are independent adults, as I guess most are when the parent dies.

Second, I have three children, which means they can’t all be left the same percentage, i.e. someone will have to be nominated for the 34 per cent portion. What can be done about that?

This is often a point of confusion. Superannuation and tax law differ in terms of who is considered a “dependant”.

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A person can be a SIS (superannuation) dependant (eligible to get the money) but not an ATO dependant (have to pay tax on it).

If someone is not a SIS dependant, they can still often receive the money, but only via the deceased’s estate. 

The key differences between the definitions are:

• A tax dependant does not specifically include an adult child (whereas an SIS dependant does).
• A tax dependant specifically includes a former spouse (whereas a SIS dependant does not).

The below table summarises who is considered a dependant under both the super and tax rules.

The most common scenario when tax has to be paid is when individuals leave their super to independent adult child(ren).

Tax is levied at 17 per cent (including Medicare levy) of the taxable component only. In some cases, it could be up to 32 per cent if there is any untaxed element with the account. If this is the case, you should seek advice.

If you are intending to leave sizeable benefits to adult children, there are options available to reduce this tax by converting some of the taxable component into a tax-free component. I covered that here. It can be complicated, so again, I suggest speaking with your super fund or obtaining financial advice.

Question 3

My partner and I never married but have been together 35 years. We live in my house, for which I have paid all the bills, the mortgage (owned outright for 15 years) and renovations. 

He has contributed to his food and share of bills, but no part of the mortgage for all of those years. That was my choice. 

I want to leave the house to my two daughters. He has received an inheritance and has his own money. He paid for our overseas trip this year. 

I want to ensure that the house goes to my girls, and not him or his daughter, who was never a dependant of mine.  Is this possible?

I’ve asked Ann Janssen the founder of Estate First Lawyers to provide us with some help with this question. She provides the following response:

It is possible to write a will leaving everything to your two daughters (unless you have entered into an agreement to make mutual wills with your partner – which is not common). The risk is that your partner could bring an estate claim after you pass away for more provision than you have left him. 

In most states (but not all), stepchildren can also make a claim, even if they were not dependent on you.   

How successful they are depends on all the circumstances for your particular case. Contribution is a factor, but the deciding factor is what provision is needed by the person claiming further provision from the estate. 

Factors like their state of health, age, their own financial position and the length of the relationship become very relevant to determining the success of a claim. 

There are strategies that you can use to minimise the risk of claim – you need to seek expert estate legal advice to walk through the pros and cons of each to determine what suits your particular situation.

Craig Sankey is a licensed financial adviser and head of Technical Services and Advice Enablement at Industry Fund Services.

Disclaimer: The responses provided are general in nature, and while they are prompted by the questions asked, they have been prepared without taking into consideration all your objectives, financial situation or needs.

Before relying on any of the information, please ensure that you consider the appropriateness of the information for your objectives, financial situation or needs. To the extent that it is permitted by law, no responsibility for errors or omissions is accepted by IFS and its representatives.