Muriel’s husband died a few years ago. At 54 she fell in love again and was the oldest mother in her city. She called her love child Colin. Her two oldest children, Ian and Brian, are successful engineers.
Muriel’s assets are all in her Self-Managed Super Fund.
As the sole director of her SMSF’s corporate trustee she leaves her super via a reversionary pension to her love child, Colin. He is now 16.
While she does not own much outside her Superannuation, Muriel leaves everything in her Will to her financially successful oldest boys, Ian and Brian.
She does the right thing and tells her 3 children what she is doing. Ian and Brian say that they understand and will protect their half brother.
Years pass. On her death bed, she looks at Colin proudly at what her now 23 year old has achieved in his trade.
Muriel dies peacefully in her sleep.
As executors of their mum’s Will the two oldest boys take control of the corporate trustee of mum’s SMSF.
They are heartened to know that mum did, indeed, leave her entire SMSF to their younger half brother via a reversionary pension. Not knowing how they work they seek clarification from their advisers.
The older boys are dismayed to find that since Colin is now over 18 and not maintained by his mother the automatic reversionary pension is not valid: ATO Taxation Ruling TR 2013/5
“A superannuation income stream ceases when there is no longer a member who is entitled, or a dependant beneficiary of a member who is automatically entitled, to be paid a superannuation income stream benefit from a superannuation interest that supports a superannuation income stream.”
As dutiful brothers, Brian and Ian see if mum made a binding nomination to Colin. There is none.
The older boys now have the sole discretion as to who gets mum’s superannuation.
After talking to their wives they decide to pay the superannuation to themselves, and none to young Colin.
Young Colin sees his own lawyer. He is told he can’t challenge his brothers’ discretion to pay the super to themselves. The Will contains few assets and is not worth challenging.
If you know a Muriel then get them to speak to a specialist to ensure your Estate Planning is up-to-date.