Neal v Brown – Difficulties with Superannuation Deathbed Withdrawals

Where there are no surviving tax dependents, including one’s spouse or dependant children, there is often a strong tax incentive to withdraw a member’s benefits before their death. This is due to the taxation of the payment of death benefits paid to non-dependants (e.g. independent adult children), which can range from 15 to 32% on the taxable component of those benefits.

However, tax implications should not be the sole consideration in making such decisions. As highlighted this case, if not properly considered in a member’s estate planning, withdrawing death benefits before death can have unforeseen consequences.

Background

The recent NSW Supreme Court case of Neal v Brown [2024] NSWSC 841 considered the situation where superannuation benefits were withdrawn shortly before death (i.e. the payments became assets of the deceased personally), and the Will directed that superannuation benefits be paid in a specific way.

Here, the superannuation benefits provisions in the Will were intended to deal with superannuation death benefits paid from the superannuation fund to the estate, but would they also deal with assets of the deceased that were formerly superannuation benefits but withdrawn by the deceased before death?

The Will was signed by the deceased seven days before his death and, on the day the Will was signed, he instructed both of his superannuation funds, OnePath and PortfolioOne, to withdraw all of his superannuation benefits into his personal accounts.

The timing of these withdrawals became crucial. OnePath processed the request within six days, with the benefits being paid out just one day before the deceased’s death. The other request, PortfolioOne, took an additional seven days, resulting in the benefits remaining within the deceased’s superannuation fund on the date of his death.

Clause 8 of his will dealt with the deceased’s superannuation entitlements:

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.

Judgment

Importantly, the Judgment clarified the following:

• 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. Consequently, these funds became part of the estate’s residual assets and were not separately gifted under clause 8.

• For PortfolioOne, as the superannuation benefits were still in the superannuation fund at the time of death, they fell within the scope of clause 8 and thus were separately gifted to the deceased’s children.

Key Takeaways:

The court described the drafting of clause 8 as “clumsy”. Given that the deceased desired to withdraw his benefits before death at the time of preparing his Will, this intention should have been clearly drafted in the Will. For example, clause 8 could have explicitly addressed both superannuation benefits and those amounts withdrawn from superannuation before death.

This case emphasis the necessity of not only considering tax implications when withdrawing superannuation benefits before death but also how such withdrawals interact with the terms of a Will. Proper estate planning is essential to ensure that the distribution of assets aligns with the deceased’s wishes and minimises unintended consequences.

For more information on how to navigate these complexities in superannuation entitlements, please contact us:

Alasdair Woodford
Principal
T: 03 5225 5217| M: 0436 456 144
E: awoodford@ha.legal

Joseph Flanagan
Senior Associate
T: 03 5226 8504
E: jflanagan@ha.legal

Ben Smith
Lawyer
T: 03 5225 5262
E: bsmith@ha.legal

Jemimah Fitzgerald
Graduate Lawyer
T: 03 5225 5219
E: jfitzgerald@ha.legal