Estate Planning & Self Managed Superannuation Funds

The decision of Loppolo & Hesford v Conti [2013] WA highlights the need to carefully consider superannuation in respect to estate planning. In Loppolo v Hesford  the surviving trustee of a self managed superannuation fund (SMSF) ignored the wishes of his deceased wife and paid her superannuation death entitlement to himself as the dependant spouse rather than to their children.

What follows is a number of key planning issues to consider in respect to your superannuation entitlement when you are planning your estate.

The SMSF’s trustees were Mr & Mrs Conti. Upon the death of Mrs Conti, to comply with the relevant  superannuation law, Mr Conti had to either appoint a second  individual trustee or change the trustee to a Corporate Trustee. Mr Conti appointed a Corporate Trustee, of which he was the sole Director. Mrs Conti’s executors (her children) argued that as executors, they should have been appointed as Trustees. The court rejected this argument.

As sole Director of the Corporate Trustee, Mr Conti had discretion as a trustee of the SMSF, including the payment of Mrs. Contis’s death benefits to himself.

Mrs Conti had previously prepared a Binding Death Benefit Nomination (BDBN) directing the trustee to pay her entitlements on death to her children. At the time of her death, however, her BDBN had lapsed and was therefore no longer valid.

In the absence of a valid BDBN, as the director of the corporate trustee Mr Conti was therefore able to pay Mrs Conti’s superannuation entitlements to himself.

While the lapsed BDBN and Mrs Conti’s Will indicated her wish to distribute her superannuation entitlements to her children, Mr Conti elected to pay all of the entitlements to himself. The children challenged this decision.

The court held that Mr Conti had acted in a bona fide manner in his capacity as the trustee of the SMSF. As such Mr Conti’s decision as Trustee to pay the superannuation entitlement, to himself was held to be valid.

There a number of important factors that must be considered when formulating an estate plan involving superannuation, and in particular a SMSF as follows:

  1. Superannuation entitlements do not ordinarily form part of the deceased’s Estate. They are part of a separate trust and the trustee determines subject to the Trust Deed and any valid BDBNs how and to whom the entitlements are to be paid.
  2. BDBNs can play a key role in superannuation estate planning. Therefore it is important for members of a superannuation fund including a SMSF to ensure that the BDBNs are valid, and have not lapsed.
  3. While BDBNs can be very useful, binding the trustee may not always be appropriate. BDBNs should therefore always be reviewed. For example if a member of a superannuation elects to utilize a BDBN in favour of a dependant child and at time of the member’s death the dependant child no longer qualifies as a financial dependant there will be 16.5% tax on receipt of the death benefit.
  4. Hence the need for a regular review.
  5. Furthermore carefully consider who should be the trustee either individuals or a corporate trustee.
  6. More importantly, carefully consider upon the death of a member how should the SMSF be controlled.

Should you require advice in respect to the preparation of your estate plan involving superannuation including self managed superannuation funds or for any other related superannuation or estate planning matter please contact our Estate Planning Lawyers Sydney.

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