The recent Court case of Ioppolo & Hesford v Conti highlights the issues involved in estate planning where superannuation, and in particular an SMSF, is involved.
In this case, a wife passed away with a Will in place which directed her superannuation to be paid to her children and specifically not to her husband.
On her death, her husband assumed control of the SMSF as the remaining trustee. He then retired as trustee and appointed a corporate trustee, which he controlled, as trustee of the SMSF (Trustee). Appointing a corporate trustee enabled the Fund to satisfy the requirements of a single-member SMSF under the Superannuation (Industry) Supervision Act 1993 (SIS Act) and therefore there was no need to appoint any other persons as trustees or members of the Fund.
At the time of her death, the wife did not have a valid death benefit nomination in place. As a result, the Trustee had broad discretion to pay her superannuation benefit to any spouse, child, or other person who in the Trustee’s opinion was dependent on the member as at her date of death. The trustee subsequently paid the entire superannuation benefit of approximately $650,000 to the husband.
The wife’s children, in their capacity as executors of her estate, brought an action against the husband and the corporate Trustee in the Supreme Court. It was common ground between the parties that the Trustee was entitled, but not bound, to take into account the wishes expressed in her Will regarding distribution of the superannuation benefit.
The children argued that, as executors of the estate, they were entitled to be appointed as co-trustees of the Fund and therefore would have had some power to influence the decision in relation to the payment of the superannuation benefit. The children also argued that by failing to take into account the directions in the Will, the Trustee had not acted in ‘a bona fide manner’, as required by the Fund’s trust deed.
The court found that, while the SIS Act allows an executor to be appointed as a co-trustee of an SMSF, it does not require that such an appointment be made.
The Court held Trustee was entitled to ignore the direction in the Will and that the mere fact of doing so could not of itself be evidence of a lack of bona fides.
Superannuation is not an ‘estate asset’ and therefore it can only be dealt with in your Will if the superannuation trustee pays your death benefit to your estate. The superannuation trustee may be bound to do this, or may choose to do this.
In the absence of such arrangements, superannuation generally cannot be disposed of under a Will. Accordingly, it can often be overlooked with financial and emotional costs to those who are left behind. In order to validly deal with your SMSF benefit on your death, you need to have in place an arrangement such as:
- a binding death benefit nomination; or
- a death benefit agreement.
Please note a non-binding nomination will not bind the trustee of your SMSF and therefore is really only slightly better than having no nomination. It may however sometimes be better to allow your superannuation trustee to have some flexibility, (assuming you can trust the trustee).
A valid and binding death benefit nomination or a death benefit agreement will force the trustee of your SMSF to pay the superannuation benefit to the person(s) you have specified.
The arrangement that is best for you will depend on your circumstances. You should therefore seek advice to review for estate planning which takes into account your Superannuation benefits.s