Superannuation – Recent court decision highlights importance of proper estate planning and Binding Beneficiary Nominations

Posted on 16th April 2015 by Christabelle Harris

A recent decision handed down by the WA Court of Appeal has caught our attention as being “critical” for our Self Managed Superannuation Fund (SMSF) clients and follows on from last month’s Newsletter article.

In late 2013, the WA Supreme Court handed down the decision of Ioppolo v Conti [2013] WASC 389, which was subsequently appealed with the outcome of the appeal recently handed down.

The original case involved Francesca Conti and Augusto Conti, who were married and both individual trustees and members of their SMSF. Francesca had children who were not Augusto’s biological children.

Their SMSF’s trust deed stated that unless there was a binding death benefit nomination, death benefits were to be paid at the trustee’s absolute discretion which is a very common provision of many funds deeds.

Francesca did not leave a valid binding death benefit nomination before she died. In her will, however, she stated that her entitlements in the SMSF were to be paid to her children and specifically stated that no SMSF death benefit be paid to Augusto.

It appears that Augusto had all the power to appoint a new trustee and he arranged for a company called ‘Augusto Investments Pty Ltd’ to be appointed as the trustee of the SMSF of which he was the sole director and shareholder.

With Augusto left as the sole trustee, he decided to pay all of Francesca’s benefits to himself and not to her children as clearly directed in her will.

Two of Francesca’s children were executors of Francesca’s estate, and they brought an action on several grounds. The distribution of the death benefits was at the heart of the dispute.

In the 2013 decision, the plaintiffs, who were Francesca’s children and executors, argued that Francesca’s legal personal representative must be appointed as trustee of the fund because the fund was required to remain a SMSF. This argument failed in the 2013 decision and the plaintiffs lost again on appeal.

There is a common misconception that a trustee’s legal personal representative automatically steps into the role of trustee of the SMSF. Whether or not this is the case will depend on whatever the SMSF’s trust deed says.

If your SMSF has individual Trustees you need to check your trust deed to determine who will be the trustee upon death so as to achieve the desired outcome for the estate.

Many of our clients have a SuperCentral Trust Deed and we can confirm that under the current Governing Rules for the SuperCentral Deed, the Legal Personal Representative of the deceased Trustee will automatically become a trustee of the fund (this is on the basis that the Legal Personal Representative is not a disqualified person according to the SIS Act).

Where a SMSF has a corporate trustee with multiple directors, upon the death of a member, a successor director can step into the place of the deceased member if required or one director can continue to operate as sole director of the corporate trustee.

The plaintiffs also argued in the 2013 decision that because Francesca’s Will directed all benefits to be paid to her children, Augusto had not acted in good faith in paying himself. They lost both the 2013 decision and the appeal.

Our Superannuation Team and our network of Lawyers are well equipped to assist you with any estate planning issues.  Call us on 9316 7000 should you require assistance in this area.