Craig Day, head of technical services for Colonial First State, said in a recent FirstTech podcast that many people assume a spouse is someone you’re married to, but in Australia, the definition of spouse is broader and more complex.
“For super and tax purposes, a spouse also includes someone you are in a relationship with that has been registered under a state or territory law, or someone you live with, in a de facto relationship,” Day said.
Alex Denham, senior technical adviser with CFS, said whether or not someone qualifies as a spouse is critical when it comes to paying superannuation death benefits as a person’s spouse is included in the definition of SIS dependents, and is therefore eligible to receive a death benefit payment directly from the super fund.
Day added: “Given death benefits can often be worth hundreds of thousands, if not millions, of dollars these days, this is where you can see the potential for disputes. But we also need to be conscious of the tax definition of spouse because a spouse, as well as an ex-spouse, is included in the definition of dependent for tax purposes.
“That means any lump sum payment of a superannuation death benefit to that person is going to be tax-free.”
Day said the critical issue is whether the person was the spouse of the deceased at the time of death.
“For example, one quite recent court case involving a million-dollar-plus death benefit hinged exactly on that question. If the person nominated under the member’s binding death benefit nomination was found to be their de facto spouse at the time of death, it would have been valid and binding on the trustee, and that beneficiary would have received 100 per cent of the death benefit,” he said.
“But if they were found not to be the spouse at that time because the relationship had already ended, the nomination would be invalid and 100 per cent of the death benefit would be paid to the member’s estate, of which they were not a beneficiary.
“So, very high stakes indeed.”
Denham also pointed out that while determining who is considered a spouse is important at the time of death, it’s also important for advisers to consider much earlier.
“[It should be considered when] providing initial advice to new clients, setting up new superannuation interests, rolling over existing superannuation interests at retirement, starting pensions and when you’re thinking about binding nominations, reversionary, pension nominations, and overall estate planning requirements,” he said.
“For existing clients, it might mean reviewing their situation and drilling down into what the existing binding nominations are, whether they are valid or they need to be changed because in a lot of circumstances, a person may think of that ex as no longer being their spouse or their new boyfriend or girlfriend not being their spouse when in fact, they actually might be depending on the circumstances.”
Thank you IFA for this article. I am happy a major publication took this up. The only thing I would add is that is that I know of cases that are even more complicated than this. But never the less thank you for opening the door. Adviser need to update their estate planning training ASAP.