What rights do your stepchildren have to your superannuation benefits when you die?
Karen Robinson
When a marriage or relationship ends because of the death of a parent, the question of who is a ‘stepchild’ for superannuation purposes has changed.
In recent years, decisions of the Australian Financial Complaints Authority (AFCA) and the Courts have shifted the legal landscape, which has implications for everyday Australians planning their estates.
In stepfamilies, estate planning is rarely as simple as ‘who gets what’. Instead, couples must grapple with how to fairly distribute assets between the surviving member of the couple and the children from a previous relationship.
In all Australian states the law recognises the right of a stepchild, sometimes conditional, to challenge the Will of a step-parent. This often occurs where a step-child’s natural parent dies before their step-parent but has contributed to the accumulation of the step-parent’s wealth. The step-child may believe that a portion of that wealth should ultimately pass to them.
But what about superannuation?
While these benefits can form part of a deceased estate, they are often instead paid directly to a superannuation member’s dependants. This is not limited to financial dependants and includes, amongst others, adult children and stepchildren.
Recent decisions by AFCA and the Courts have changed the interpretation of who is treated as a stepchild on the death of a superannuation member. The accepted view is now aligned with how the meaning of step-child is interpreted by the Court in Will challenges. This aligns with changing community expectations and the evolution of traditional families in Australia.
Who counts as a stepchild?
A stepchild is the natural or adopted child of your spouse or de facto partner. It is estimated that more than 1 million Australians belong to a stepfamily.[1]
In 2011 the ATO issued guidance that a child ‘ceases to be stepchild of a step-parent when the relationship between the child’s natural parent and the step-parent ends. This means, on the death of the natural parent or the divorce of the natural parent from the step-parent.
It follows earlier cases where the Courts came to this conclusion. In these circumstances the stepchild becomes a former stepchild.
However, the current thinking has changed. The accepted view now is that the relationship between a stepchild and step-parent does not automatically end on the death of the natural parent.
Stepchild versus a former stepchild
A person’s status as stepchild or former stepchild is important because it determines whether they are eligible to be a beneficiary of a superannuation death benefit. Under superannuation laws, a stepchild is eligible, but a former stepchild is not.
If a stepchild becomes a former stepchild then their only means of benefiting directly from a former step-parent’s superannuation death benefit is if they can demonstrate they were a financial dependant of, or lived in an interdependent relationship with, their former step-parent at the time of this person’s death.
AFCA in its current approach to superannuation death benefit complaints recognises the relationship between a stepchild and step-parent continues where:
- the marital or de facto relationship between the step-parent and natural parent of the stepchild existed at the time of the natural parent’s death, and
- a parental relationship between the step-parent and stepchild has since been maintained.
An AFCA decision last year found the four adult stepchildren of the member remained as stepchildren despite their natural parent having died before the step-parent and despite them being financially independent of the step-parent.
The AFCA panel accepted that even though their stepmother had dementia the relationship was maintained and the stepmother continued to treat them as her stepchildren.
What is a parental relationship?
Is exchanging Christmas cards or the occasional phone call with a step-parent enough?
The Courts and AFCA look beyond sporadic contact to determine whether a genuine ‘relationship of affinity’ continued to exist between a step-parent and stepchild.
In 2024 AFCA upheld a decision by a superannuation trustee to distribute a deceased member’s superannuation death benefit between the member’s biological child and three stepchildren, finding one stepchild had maintained an ongoing relationship of affinity with the deceased. However, two other stepchildren were excluded because they no longer had a real, substantive relationship with the deceased and were therefore not considered eligible beneficiaries.[2]
While there is no bright-line test, occasional Christmas cards or infrequent phone calls alone are unlikely to be sufficient. Instead, the evidence should demonstrate a genuine, ongoing relationship in which the stepchild continues to be regarded and treated as part of the family.
As AFCA has acknowledged, proving the existence of such a relationship can be challenging, particularly where family relationships have deteriorated over time or disputes arise following the payment of a significant superannuation death benefit.
So how do you evidence the relationship? While it is difficult to evidence visits, telephone calls and practical support for a step-parent with such things as groceries and doctor visits, keeping a record of family gatherings, letters and emails can be helpful. Often individual statements from self-interested parties documenting the nature of the relationship may be all that is available. In the 2024 AFCA decision mentioned previously, the in-person attendance by the stepchildren at their step-parent’s funeral during COVID when attendance was severely restricted carried some weight towards establishing the nature of the parental relationship.
How do you create certainty?
The best way to create certainty is to put in place, and regularly review, a valid binding death benefit nomination.
If you are married and have stepchildren, and you have nominated your spouse as your beneficiary, it’s important to revisit that nomination if your spouse dies before you.
Often these nominations lapse every 3 years so it’s worthwhile checking. A nomination that has lapsed, whether because of time or because the beneficiary you have nominated has died, becomes non-binding and may carry little weight in a superannuation fund trustee’s decision.
A valid binding nomination ensures your superannuation death benefits are paid to your nominated eligible superannuation dependants or to your legal personal representative (your executor, where you have a Will) in accordance with your wishes. This provides you with certainty as to the recipient of these benefits rather than relying on the superannuation fund trustee to decide who should receive your benefit, particularly where complex family dynamics are involved.
It is also important to remember that every superannuation fund has its own governing rules around eligible beneficiaries and binding death benefit nominations. These rules can differ between funds, so they should always be checked.
Finally, people often assume their superannuation death benefits will automatically be distributed under their Will, but this is often not the case. If you have stepchildren, obtaining tailored estate planning advice is critical. An experienced estate planning lawyer can ensure your Will and binding death benefit nomination work together to ensure your wishes are carried out and reduce the risk of expensive disputes after your death.
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