When it comes to bankruptcy and superannuation, a lump sum death benefit payment from a regulated super fund to a bankrupt is protected, and that money will not be available to creditors. But what happens when the lump sum death benefit payment is paid to the estate, and the estate pays the money to the bankrupt? A sad story where a son lost his mother’s superannuation!
Andrew Gapes was made a bankrupt on 17 January 2011. On 18 December 2013, his mother died. Andrew was an executor and beneficiary of his mother’s Will.
The proceeds of the mother’s superannuation fund were not paid directly to Andrew or his siblings, but rather were paid to her estate. On 12 March 2014, in accordance with the terms of her Will, the superannuation funds were distributed to Andrew and his siblings. Andrew directed that his share, being $87,900.33, be paid to his wife because he did not operate a bank account at that time.
The Trustee in Bankruptcy of Andrew’s estate commenced legal proceedings against Andrew’s wife on 14 November 2016 demanding the payment of the money.
The Court had to decide whether the death benefit which was firstly paid by the superannuation fund to the estate of a deceased, and then secondly was paid by the estate to the bankrupt person, was protected from creditors. The answer: NO. On 13 July 2017, the wife was ordered to repay the money!
This is to be contrasted with a situation where a lump sum death benefit payment from a regulated super fund is paid directly to a bankrupt. In such a case, that payment is not available to creditors.a death benefit received by a bankrupt directly from a super fund is a protected payment and not available to creditors, but that a payment from an estate to a beneficiary is not a protected payment even where those funds are derived from a death benefit.
1. a superannuation death benefit received by a bankrupt directly from a super fund is a protected payment, and is not available to creditors
2. a payment received by a bankrupt from an estate is not a protected payment even where those funds are derived from a superannuation death benefit, and is available to creditors
What to Do?
If you are likely to receive money or assets from someone (such as your parents) following their death, you need to carefully consider your circumstances. You need to look into your ‘crystal ball’ and consider the various scenarios that may arise in the future.
What Andrew needed to do may be the opposite of what you need. But there’s no doubt that in January 2011, Andrew should have arranged for his mother to review her estate planning arrangements. A Will containing a testamentary trust may have been a good option – but Andrew’s entire circumstances had to be considered.
People facing bankruptcy are probably less likely to obtain professional advice, and they are not likely to receive useful advice from any government department.
When speaking with your parents, you may not want to disclose your dire financial circumstances. You can however still discuss the benefits of (and the need for) proper estate planning where their Will and Superannuation Benefits can be protected from attack.
Disclaimer: The above is to be considered as general education. This is not advice and it is not to be acted upon without advice from a qualified professional who understands your personal circumstances.
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