What if you want to look after your current spouse but on their death or re-marriage ensure that your super death benefit goes to your own children of a previous relationship?
George and Marsha are currently married to each other but George has had a previous relationship and has 3 adult children Tom, Dick and Harriet from his previous relationship.
Both are in the same SMSF, but George’s balance is significantly larger than that of Marsha. Both are over 60 years old and in pension mode.
If he dies first, George wants to look after Marsha for the rest of her life (or until she remarries), but then ensure that his children benefit from his estate.
George’s financial adviser suggested that he might make his super pension reversionary to Marsha to provide her with a tax-free income stream. However, on her death, she cannot make a BDBN in favour of George’s children as they are not her SIS dependants. She would therefore need to make a BDBN to her estate, and in her Will she would need to state that the super proceeds would go to George’s children.
However, George’s lawyer points out that Marsha could potentially change her Will after George’s death to exclude George’s children as beneficiaries, e.g., if she re-married her new spouse may persuade her to give everything to him instead. It would therefore be preferable if there was a way that George could implement his intentions in a way that did not rely on having to trust Marsha to do (or not do) something.
George’s lawyer and financial adviser then get together and (having first checked the SMSF trust deed to ensure it contained the appropriate power) decide that George should put into place a conditional BDBN in relation to his super interest as follows:
“I direct that on my death my superannuation death benefit is to be dealt with as follows and in the following order:
- should my spouse Marsha survive me by 30 days, then my superannuation death benefit shall be used to pay to her a non-commutable allocated pension (in respect of which the total amount of payments made each year are not to exceed the amount which would enable such pension to continue for the remainder of her life expectancy calculated as at the date of my death) and in this regard such pension is to continue until the earlier of Marsha’s death or her entering into a spousal relationship (whether legal or de facto) with any other person;
- should my spouse Marsha fail to survive me by 30 days, or upon Marsha’s death or her entering into a spousal relationship, then I direct that my superannuation death benefit is to be divided equally between such of my three children who survive me by 30 days as lump sums.”
George’s lawyer notes that two of George’s children already have children of their own. George’s lawyer suggests to George that George could put into place a Will containing a Testamentary Discretionary Trust which includes each of George’s children, grandchildren and further issue as potential beneficiaries, and amending George’s conditional BDBN to say as follows:
“2. should my spouse Marsha fail to survive me by 30 days, or upon Marsha’s death or her entering into a spousal relationship, then I direct that my superannuation death benefit is to be paid to the legal personal representatives of my estate.”
This would mean that George’s super death benefit would go into the Testamentary Discretionary Trust, so that any investment income earned by the trust could be distributed to George’s minor grandchildren in a way that would attract concessional tax treatment in their hands pursuant to section 102AG of the Income Tax Assessment Act 1997 (Cth).