Will your superannation benefits go where you want on your death?

 

In a recent case Ioppolo & Hesford v Conti [2013] the WA Supreme Court confirmed that the payment of superannuation death benefits is not a matter that can be dealt with in your will.  It also re-affirmed that the executors of an estate are not automatically appointed trustees in place of the deceased member.  Ultimately the payment of death benefits and the appointment of additional trustees will come down to the terms of the superannuation deed.

In the Conti case Augusto & Francesca Conti established a self managed superannuation fund in 2002 where they were the only members and we both individual trustees.

Francesca died in 2010 and had a valid will which she made in 2005.  Under the terms of her will she directed that her superannuation benefits be paid equally to her children.  In 2002 & again in 2006 Francesca made Binding Death Benefit Nominations leaving all her benefits to her husband.

Subsequent to Francesca’s death Augusto established a corporate trustee of which he was the sole director.  Ultimately Augusto paid all of Francesca’s death benefits to himself ignoring Francesca’s will.  Francesca’s executors, on behalf of the beneficiaries, took exception to the way that Augusto dealt with Francesca’s death benefits and instigated proceedings in the Supreme Court of Western Australia.

The executors claimed that they should have been appointed as additional trustees of the superannuation fund in place of Francesca and applied to the Court that Francesca’s death benefits be paid in accordance with her will.

The courts ruled that:

  •  Augusto had acted in accordance with the provisions of the trust deed which provided that in the event of there being no valid Binding Death Benefit Nominations the trustee shall have the unfettered discretion to pay the death benefits as they see fit.  Under the terms of the superannuation deed Binding Death Benefit Nominations lapse after 3 years and as such there were no valid Binding Death Benefit Nominations in force at the time of Francesca’s death:
  • The SIS Act did not give the legal personal representatives (the executors) the automatic right to be appointed as trustee of the superannuation fund for the purposes of the payment of Francesca’s death benefit.

As with Kratz v Grossman and Donavan v Donavan the court confirmed that the payment of superannuation death benefits are always made in accordance with the superannuation fund’s operative deed, especially with regards to the validity of a Binding Death Benefit Nomination.

Solution

To prevent the possibility of an Ioppolo disaster befalling on members of your self managed superannuation fund you should:

  •  have a superannuation fund deed that enables the member to nominate who will be their replacement trustee when they die; and
  •    make sure that all members have a valid, up-to-date Binding Death Benefit Nomination.

In addition to ensuring that the members have a valid, up-to-date Binding Death Benefit Nomination consideration should also be given as to whether the superannuation trust deed should permit a non-lapsing Binding Death Benefit Nomination or permit the member to create a Superannuation Will.  A Superannuation Will, unlike a Binding Death Benefit Nomination, becomes part of the rules of the superannuation fund and must be adhered to by the trustees.  A Superannuation Will is more specific than a simple Binding Death Benefit Nomination as you can stipulate what assets will pass to what party.  A Superannuation Will is also non-lapsing and can only be changed by the member.

Irrespective of whether a member completes a non-lapsing Binding Death Benefit Nomination or creates a Superannuation Will it is imperative that this is reviewed at least every three years to ensure that they still meet the wishes of the members.  This is especially so when the dynamics of the members family situation changes.

If you would like any further information of the implications of superannuation benefits on your estate planning or would like to have your situation reviewed please do not hesitate to contact Bradley Ross from our SMSF Division on 02 4721 6000