Where there is no surviving spouse or other dependants, there is often a strong tax incentive to withdraw a member’s benefits before their death. This because death benefits paid to non-“death benefit dependants” (eg independent adult children) are taxed between 15 - 32% on the taxable component of those benefits. However, tax should not be the only consideration when considering taking out benefits before death. As shown in this case, withdrawing death benefits before death can have unintended consequences where not properly considered in the member’s estate planning.
The case of Neal v Brown [2024] NSWSC 841 considered the situation where super benefits were withdrawn before death (ie the payments become assets of the deceased), but the will directs that super benefits be paid in a specific way. Clearly, the super benefits provisions in the will would deal with super death benefits paid from the super fund to the estate, but would they also deal with assets of the deceased that were formerly super benefits but withdrawn by the deceased before death.
Here, the will was signed by the deceased seven days before his death and, on the day he signed his will, he instructed both of his superannuation funds (OnePath and PortfolioOne) to withdraw all of his superannuation benefits into his personal accounts.
One of those requests was processed in six days and paid the day before his death (OnePath). The other request (PortfolioOne) took an extra seven days and therefore, without more, remained as part of his superannuation on the date of his death.
Clause 8 of his will was declared in the Judgment to constitute a separate gift of the proceeds of his superannuation benfits:
8. I CONFIRM all net monies from my superannuation and pension entitlements in PortfolioOne Pension Service (PIN XXXXXXXXX) and OnePath OneAnswer Frontier Pension (PIN XXXXXXX) and all other pension, retirement or superannuation funds (if any) in my name or held in my favour at the time of my death be received by my Trustee into my Estate and then to be left and distributed in equal shares to those surviving me being [the Children] and for [Sebastien] (to be held in trust until he attains twenty five (25) years of age) for their respective benefit absolutely.
For OnePath, it was declared in the Judgment that those superannuation benefits had been cashed out and could no longer be described as superannuation and pension entitlements at the date of death of the deceased for the purpose of the will, and therefore this amount formed part of the residual of the estate and was not separately gifted under clause 8.
For PortfolioOne, as the superannuation benefits had not been paid out by the date of death, those superannuation benefits were declared in the Judgment to fall within clause 8 being described as superannuation and pension entitlements at the date of death of the deceased, and therefore be separately gifted under clause 8 to his children.
The drafting of clause 8 was described in the Judgment as “clumsy”. Given the deceased desired to withdraw his benefits before death at the time of preparing his will, this should have been completed in the drafting of the will. For example, clause 8 could have governed not only death benefits paid to the estate but assets of the deceased that were withdrawn from the deceased’s super funds before death.
This case shows that, when withdrawing super benefits before death, not only should tax be considered but also how such withdrawn assets will be treated under the deceased’s will and wishes.
For further information please contact:
Phil Broderick
Principal
T +61 3 9611 0163 l M +61 419 512 801
E pbroderick@sladen.com.au
Terence Wong
Senior Associate
T +61 3 9611 0112 l M +61 0458 846 022
E twong@sladen.com.au