Do you have an effective estate plan for your superannuation benefits? Are you certain that your death benefit will be paid in accordance with your wish when you pass away? The following court cases highlight why it is important to:Do you have an effective estate plan for your superannuation benefits? Are you certain that your death benefit will be paid in accordance with your wish when you pass away? The following court cases highlight why it is important to:
- Ensure any binding death nomination is valid
- Understand the trustee structure of your SMSF
- Understand how control of your SMSF passes in the event of death
- Understand if a binding death nomination is appropriate
Donovan v Donovan
You may have a binding death benefit nomination (“BDBN”) in place. However, is it a valid nomination that the trustee(s) has to act in accordance with upon your death or is it merely a wish?
Two years prior to the Deceased’s death, he wrote a letter to the SMSF trustees advising of his wish that, in the event of his death, the residual balance of his superannuation account is to be paid to the legal personal representative of his estate.
Upon the Deceased’s death, his daughter from a prior marriage applied to the Court seeking an order to enforce the letter as a BDBN.
The Court held that the letter did not constitute a BDBN.
Although the SMSF deed allowed binding and non-binding nominations to be made, it also specified that any binding nomination must be made in a form that complied with the statutory requirements prescribed by the law. As the letter failed to specify which type of nomination it was, the letter was merely an expressed wish rather than a BDBN.
Donovan v Donovan highlights that it is important to ensure that any BDBN you put in place is valid.
Ioppolo & Hesford v Conti
In this recent case the Deceased and her husband (Augusto Conti) were the trustees of an SMSF. The SMSF deed provided that death benefits were to be paid at the trustee’s absolute discretion unless there was a BDBN.
The Deceased passed away without leaving a BDBN, but there was a will. In her will, she expressed that her superannuation benefits in the SMSF were to be paid to her children and specifically stated that she did not want any SMSF death benefit to be paid to her husband.
Following the death of the Deceased, Augusto retired as a trustee of the SMSF and appointed a company (which he controlled) to be the new trustee of the SMSF. The new trustee then decided to pay the entire death benefit to Augusto.
The Deceased’s children (in their capacity as the executors of the estate) took Augusto and the new trustee to court to challenge the decision. The children argued that, as the executors of the estate, they were entitled to be appointed as co-trustee of the SMSF. Furthermore, they argued that the trustee had not acted in good faith by ignoring the wishes expressed in the Deceased’s will.
The Court determined that while the law allowed an executor to be appointed as a co-trustee, it was not mandatory that the appointment be made. The Court also rejected the argument that the trustee did not act in good faith. The mere fact that the trustee ignored the wishes expressed in the will was not evidence that the trustee acted in bad faith.
Ioppolo & Hesford v Conti highlights a number of important points in superannuation estate planning:
- Contray to common belief, a will does not cover superannuation. Superannuation entitlements do not ordinarily form part of the deceased’s estate;
- A valid BDBN can be very useful as it binds the trustee into a certain cause of action;
- The issue of who is the trustee of your SMSF and who will control the SMSF upon the death of a trustee/member must be carefully considered; and
- It is difficult to prove that the trustee did not act in good faith.
