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The value of having robust SMSF estate planning arrangements in place

Proper estate planning is dear to my heart. Unfortunately, I see the best laid strategies go wrong too often when this critical stage of planning is not addressed. Superannuation is rapidly becoming one of the largest assets in a family’s nest egg, so it is essential well-informed, strategic and legislatively correct estate planning is carried out and documented correctly. 

As a result, I would like to revisit the recent decision of . Like prior cases, it holds key messages that SMSF trustees and advisers should be aware of. 

In this case, Mr Morris (the deceased) executed a binding death benefit nomination (BDBN) in favour of his two adult daughters (Mrs Wooster and Mrs Smoel – the plaintiffs) from his first marriage over all of his interests in the Morris Family Super Fund (MFSF). His total interests in the fund were $924,509. Probate of the deceased’s will was granted to his daughters. 

His second wife, Mrs Morris, was the other member and trustee of the fund. 

After the death of Mr Morris, Mrs Morris resumed responsibility of the MFSF and appointed her son from her first marriage, Mr Ashman, as co-trustee of the fund. The trustees sought legal advice on whether the BDBN was valid. The legal opinion was that it was ineffective.

Subsequent advice was also sought on the form in which the death benefits could be paid, how the deceased’s death benefits might be paid and what the trustees of the MFSF were required to do or refrain from doing in order to pay the death benefits.

Based on this advice, the trusteeship was changed and Upper Swan Nominees was appointed as trustee. Mrs Morris was appointed sole director and shareholder of this company. Mrs Morris then proceeded via resolution to transfer all of the deceased pension and accumulation interests to accounts under her name within the MFSF.

The plaintiffs issued proceedings stating that, among other issues, the BDBN was valid and binding. They referred the matters to a special referee for determination. The special referee found in favour of the plaintiffs that the BDBN was in fact valid and binding over the total of the deceased superannuation interests of $924,509 plus accrued interest. 

The court confirmed the decision of the special referee. With regards to the legal costs, the defendants argued it should be paid only from the deceased’s interest in the fund. The courts held that due to the actions and decisions made by Mrs Morris, all money in the MFSF (including Mrs Morris’s accounts) were available to meet the payments as well as Upper Swan Nominees and Mrs Morris being also jointly and severally liable for any outstanding payments.

What lessons can we learn?

  • It is of critical importance to have a current trust deed in place and that the deed has the appropriate powers in relation to an automatic appointment of the executor(s) as trustee in place of the deceased. The trust deed also needs to have the appropriate powers regarding the nomination of beneficiaries, reversionary beneficiaries, BDBNs, SMSF wills and the like. Legal proceedings may not have occurred if the trust deed provided for automatic appointment of the executors (such as the daughters of the deceased) to step in as trustees in replacement of Mr Morris until the payment of death benefits.
  • The case highlights the importance of a properly executed and valid BDBN, the correlation back to the governing rules of the fund, and the need for it to be in accordance with the superannuation laws.
  • The decision demonstrates the importance of proper and well-considered estate planning. The BDBN was held to be valid, however, this did not stop a legal battle occurring in the courts for over three years. It is critical that an adviser considers all aspects of estate and succession planning and does not assume a BDBN on its own is sufficient.

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