An article recently published reported that research from Super Consumers Australia revealed that 36% of Australians with superannuation say they haven’t informed their superannuation fund who should receive money upon death, and just 24% have made have made a binding death nomination. The BDNs are more common amongst older people. Further research showed that 51% of people over the age of 45 years aren’t sure what type of nomination they have given their fund. Even in the over 65 years (perhaps the most affected group) only 54% knew they had made a binding nomination. Without a BDN it is up to the trustees of the fund who the money goes. Many people believe that their Will should cover their wishes as far as superannuation is concerned, but without a BDN the super may never go to the estate to be dealt with under the will. This could leave families in an uncertain position particularly where there may be blended families or defacto situations.
What is a BDN and what are its features and requirements?
A BDN is a legally binding instruction to the trustees of the superfund specifying who should receive a member’s super death benefit upon their passing. To be valid, it must name dependents or the legal personal representative . The dependents must be a person within the category of dependents under the Superannuation Industry (Supervision) Act 1993. For this purpose a spouse, child, financial dependent and a person in an interdependency relationship are included. Thus a parent or sibling are not included for the purposes of a BDN. The BDN must be signed and witnessed and remain valid according to the fund rules. Most BDNs for Industry and Retail funds require renewing every 3 years. Many SMSFs can have non-lapsing BDNs , but it is critical to check the trust deed as some older deeds still have a 3 year expiration date.
Our firm had an instance where a member of a retail fund died without a BDN. They had older children from a previous marriage and young children from a current marriage. The trustee of the fund decided to split the member’s balance between the older children and the current spouse. The member certainly would not have wanted that to happen.
RELEASE OF SUPER ON COMPASSIONATE GROUNDS
Many people believe that their superannuation can only be accessed upon retirement, reaching age 65 or death. However the ATO can provide a release of super on compassionate grounds. Schedule 1 ( Conditions of release of benefits) of the Superannuation Industry (supervision) Regulations allows under Regulation 6.19Afor super to be released to pay certain expenses. The eligible expenses are:
Medical treatment
Medical transport
Modifying your home or vehicle to accommodate a severe disability
Palliative care for a terminal illness
Death, funeral or burial expenses for your dependent
Preventing foreclosure or forced sale of home.
Applications for compassionate release generally need to be for unpaid expenses, however, if you have borrowed money to pay the expenses you may be able to access your super to pay the outstanding balance of the loan.
To obtain a release all of the following conditions must be met:
1 you are, or have been a citizen or permanent resident of Australia or New Zealand
2 you meet the eligibility requirements of the specific compassionate grounds you are applying for.
3 you or your dependents’ expense is unpaid or has been paid as a result of borrowings.
4 you can’t afford to pay part or all the expense without accessing your super.
For medical treatments, the eligibility conditions are that the treatment is to treat a life threatening illness or injury, alleviate acute or chronic pain, alleviate acute or chronic mental illness and the medical treatment is not readily available through the public health system.
The eligible treatments are:
Surgery
Psychiatric treatment
Medicinal drugs
IVF treatment
Dental treatment
The evidence required to proceed are a quote for the treatment costs, two medical reports. One from a registered medical specialist who is a specialist in the area that you are applying to have medical treatment for and one from either a registered medical practitioner or specialist.
The ATO has recently issued a warning that it is aware of dishonest practices arising to gain early access for non-critical medical procedures. The ATO said it was aware of some health practitioners helping patients access their super on compassionate grounds via the production of inaccurate reports. Some medical practitioners were charging clients to help them fill out applications.
This type of conduct may result in the process being harder for the legitimate claims.
APPORTIONING RENTAL INTEREST EXPENSES
The ATO has recently released a paper on when interest expenses related to an rental property should be apportioned.
Co-ownership
The level of ownership makes a difference to how much can be claimed.
-joint tenants hold an equal share in the property
– tenants in common may hold an unequal share eg 20/80
If for financial reasons, a lender may require another person named on the loan (such as a parent) and that person has no other association with the rental property, you can make a separate written agreement with that person provided it is legally enforceable and witnessed by an approved person.
If a loan, or part thereof, is used for any private purpose, or a refinance is used for a private purpose there is an on going requirement to apportion the interest for the life of the loan. This is the reason why an offset account is better than a redraw facility.
If the property is used for private purposes, then the interest can’t be claimed during that period. If part of the house is used for private purposes and part rented then the interest must be apportioned according to the use of the space and time of use.
If the property is sold or the use changes then the interest must be apportioned.
PLAN YOUR DEATH (or speed up probate)
A little known issue can arise when a beneficiary of a deceased estate (second deceased) dies before a CGT asset of the deceased estate of another person (first deceased) passes to them.
Division 128 of the Income Tax Assessment 1997 sets out what happens when you die, and the CGT asset you owned just before dying devolves to your Legal Personal Representative (LPR) or passes to a beneficiary of the estate. In circumstances that are in accordance with Sections 128-15 and 128-20 of ITAA 97, CGT rollover relief is provided. The Commissioner of Taxation considers that the timing of the grant of probate is crucial in determining whether a beneficiary’s interest in the estate has crystalized.
Where the asset passes from the LPR of the second estate to the beneficiaries of the estate of the second deceased, CGT rollover relief may not apply because the second deceased died before the grant of probate of the estate of the first deceased. The LPR of the second deceased may have an unexpected CGT liability as the roll over relief is not available.
An example given is:
Meghan owns a holiday home. Shortly after her passing (before probate is granted for her estate) her husband Henry , the sole beneficiary of her estate, dies of a broken heart. The holiday home will pass from Megan’s LPR to Henry’s LPR to the beneficiary of his estate. As Div 128 doesn’t apply Henry’s LPR will be subject to CGT on the passing from his estate to the beneficiaries of his estate
It can be seen that probate should be expedited particularly where both parties are in poor health.
