One of the main aims of estate planning is to deliver on the promise of looking after a client’s family, while minimising any future legal dispute. Another legal dispute occurred in the recent Supreme Court case of Ioppolo & Hesford v Conti ([2013] WASC 389).
Like the well-known case of Katz v Grossman, this case once again illustrated the importance of control and binding death benefit nominations (BDBN) for SMSFs and the potential problems and consequences that can occur if found invalid.
Ioppolo & Hesford v Conti was recently heard in the Supreme Court of Western Australia. Mr and Mrs Conti were both the individual trustees and members of the Conti Superannuation Fund. Mrs Conti passed away in August 2010. The executors of her estate were two of her four children, Rosario Ioppolo and Grace Hesford. Mrs Conti’s will stipulated that superannuation benefits were to be paid to her four children. Her will also stated none of her benefits were to pass to her husband, Mr Augusto Conti.
The SMSF’s trust deed provided that “absent a binding written direction from a deceased member, the trustees may in their absolute discretion pay the amount of the fund standing to the credit of a deceased member’s account to a spouse or child of the member or any other person who in the opinion of the trustees was dependent on the member at the relevant date”. Mrs Conti had made two binding nominations in favour of Mr Conti, both lapsing after three years of being made. Therefore at the date of death, there were no valid binding nominations in force.
On the death of Mrs Conti, Mr Conti being the surviving trustee of the fund, retired as trustee and appointed a single director corporate trustee within six months of the death of Mrs Conti as per section 17A(4) of the Superannuation Industry (Supervision) (SIS) Act 1993. This new corporate trustee then proceeded to pay Mrs Conti’s death benefits of $648,586 to Mr Conti. Supreme Court action was then brought by Rosario and Grace. They argued that as her executors, they should have been appointed as trustees on her behalf. If such an appointment had occurred, they would have been able to participate in the decision-making around the payment of death benefits. Their action was unsuccessful. The court held that Mr Conti as surviving trustee/member was not obliged to appoint the executor(s) of a deceased member as a trustee of the SMSF pursuant to section 17A(3)(a) of the SIS Act.
Furthermore, the court ruled that the surviving trustee was entitled to distribute the deceased member’s death benefit to himself, despite a contrary direction in the deceased’s will for her SMSF entitlements to be paid to her four daughters.
The executors also argued the point that the SMSF trustee did not act bona fide by ignoring the wishes of Mrs Conti’s will. This argument was also rejected by the court.
What lessons can we take from this case?
- The importance of comprehensive estate planning and correct documentation, especially with regards to blended families. Estate planning for superannuation should be regularly reviewed to incorporate changing circumstances in a person’s life.
- The need to make sure the SMSF’s trust deed is up to date and contains the relevant clauses and powers regarding distribution of death benefits to beneficiaries via BDBNs, reversionary pensions, the SMSF death benefit rule and so on.
- The importance of properly documenting estate planning wishes in relation to the payment of superannuation benefits.
- The importance of non-lapsing BDBNs and for trustees to seek specialist advice before exercising their discretion in the payment of superannuation death benefits.
- A reminder that a deceased member’s will does not take precedence over the discretionary powers of a superannuation fund trustee in making death benefit payments in accordance with the trust deed and the SIS Act.
- The importance of having the mechanism in place to make sure the surviving spouse does not control the distribution of death benefits if they are to not benefit from any distributions.
- That SMSF objections cannot be taken to the Superannuation Complaints Tribunal, but instead will wind up in the courts.
