Stepchildren and super: are they entitled to your death benefit?

Blended families can make estate planning more complex, particularly when it comes to superannuation. A recent determination by the Australian Financial Complaints Authority (AFCA) highlights an important point: a stepchild may qualify as a dependant for superannuation purposes, but that does not necessarily mean they will receive a share of a stepparent’s superannuation death benefit. 

Can a stepchild be a dependant?

Under section 10 of the Superannuation Industry (Supervision) Act 1993 (Cth), the definition of a “child” includes a stepchild, while under the same section, the definition of “dependant” includes any child of the person. This means that stepchildren can potentially qualify as dependants for superannuation purposes.

A more difficult question can arise where the stepchild’s biological parent dies before their stepparent, and the stepparent wants to benefit their stepchild by distributing superannuation death benefits to them directly via a binding death benefit nomination (BDBN).

In the recent AFCA determination involving Australian Retirement Trust, AFCA referred to the Victorian Court of Appeal decision of Scott-Mackenzie v Bail [2017] VSCA 108. That case supports the proposition that a person does not cease to be a stepchild simply because their biological parent dies before their stepparent. The Court noted in that case, once a stepchild of the deceased, always a stepchild of the deceased, provided the marriage between the biological parent and stepparent had not been dissolved prior to the biological parent’s death.

AFCA also considered whether the relationship between the stepchildren and their stepmother continued following their biological father’s death. The stepchildren provided evidence of visits, calls and text messages, contact on birthdays and Christmases, emails, photographs and greeting cards.

The fund’s trustee ultimately accepted that there was a “relationship of affinity”, and AFCA was also satisfied the relationship between the deceased and the stepchildren had continued after the death of their biological father. The stepchildren therefore qualified as dependants under the fund’s trust deed and were potential beneficiaries of the death benefit.

Does that mean a stepchild is entitled to receive super from a stepparent?

Not necessarily.

Being a potential beneficiary did not give the stepchildren an automatic entitlement to the death benefit. Under the fund’s particular trust deed and in the absence of a valid BDBN, the trustee retained discretion about which potential beneficiaries should receive the benefit and in what proportions.

That distinction was crucial in the AFCA case.

The deceased had made a BDBN directing her superannuation equally to her four biological children. One of those children (her son) died before her, which invalidated the BDBN under the fund’s trust deed and superannuation rules. The deceased subsequently made a Will benefiting her surviving daughters and the children of her deceased son.

Although the BDBN was no longer binding, the trustee was still entitled to consider it as evidence of the deceased’s wishes. Her Will also provided evidence of those intentions.

None of the potential beneficiaries were financially dependent on the deceased when she died. AFCA considered that, in the absence of financially dependent beneficiaries, the trustee was entitled to take other factors into account, including the deceased’s wishes.

AFCA ultimately affirmed the trustee’s decision to pay the entire death benefit to the deceased’s legal personal representative, in which case the benefit was distributed via the Will to the deceased’s daughters and the children of the deceased son.

What does this mean for blended families?

The determination is a useful reminder that superannuation and estate planning need to be considered together. A Will does not directly control a superannuation death benefit unless and until the trustee decides to pay that benefit to the estate. However, a Will may still provide evidence of the deceased’s intentions when a trustee is exercising its discretion.

For blended families in particular, it is important to consider who may qualify as a dependant under the relevant superannuation fund’s trust deed, whether a BDBN remains valid, and whether estate planning documents clearly reflect how biological children and stepchildren are intended to benefit.

The recent AFCA determination shows why getting the documents right matters. A stepchild may be a dependant and potential beneficiary even after their biological parent has died, but that status alone does not guarantee that they will receive any part of share of the superannuation death benefit.

How we can help

If you have a blended family, our experienced lawyers in the Moores Wills, Estate Planning and Structuring team can assist you with ensuring your superannuation and estate planning arrangements accurately reflect your wishes.

Contact us

Please contact us for more detailed and tailored help.

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^{Disclaimer: This article provides general information only and is not intended to constitute legal advice. You should seek legal advice regarding the application of the law to you or your organisation.}