Estate Planning

Advisers should recognise death benefit red flags

estate planning death benefit strategies

Better estate planning outcomes could be achieved if advisers identify inconsistent aspects of death benefit strategies at their outset.

Advisers can protect their clients from estate planning disputes by recognising worrying or inconsistent signals in the establishment of death benefit strategies as they are formulated, a technical services manager has said.

Speaking at the SMSF Professionals Day 2019, co-hosted by selfmanagedsuper and SuperConcepts in Sydney today, SuperConcepts SMSF technical services executive manager Mark Ellem used the recent Marsella case heard in the Victorian Supreme Court to illustrate his point.

The case involved a ruling about trustee discretion upon the death of a member, Helen Marsella, and was challenged by the surviving spouse, Ricardo Marsella, as to the distribution of the SMSF death benefits.

According to Ellem, outside the legal aspects involved in the case, a number of opportunities presented themselves for an adviser to act upon to prevent the eventual situation from occurring.

The family situation of the case was that Helen Marsella had children from a previous marriage, Caroline Wareham (nee Swanson) and Charles Swanson, to whom Ricardo Marsella was the stepfather.

“On 12 May 2003, Helen Marsella, formerly Helen Swanson, establishes the Swanson Super Fund. Is that a red flag? She set up the Swanson Super Fund, not the Marsella Super Fund,” Ellem said.

“The super fund had two individual trustees – her and her daughter, not her and Ricardo.”

She also put in place a three-year binding death benefit nomination in favour of her grandchildren.

“Is that something we would pick up? Is it valid? It could be, but on the face of it are the grandchildren automatic dependants under the SIS (Superannuation Industry (Supervision)) Act? No,” Ellem said.

“What about the fact that it’s a three-year binding nomination? Remember, this was a fund that was set up in 2003, but she didn’t die until 2016, so what opportunity would an adviser have had?

“Update the trust deed for non-lapsing binding death benefit nominations. So here is our first opportunity as advisers. You’ve got people nominated who are not dependants for super purposes and you’ve got a binding nomination which only lasts for three years when in an SMSF you can have non-lapsing.

“So prior to Helen passing away, we as advisers should have the opportunity to have the correct binding death nomination in place. Also, what other indication would the fact that Ricardo is not a member of the fund and she wants her superannuation to her grandchildren give? Is that an indication she doesn’t want anything to go to Ricardo?

“So maybe we’d be flagging that to her to look at other estate planning options to ensure that if that’s what she wants, that is, the family assets from your prior marriage to go down to your children and your grandchildren, then maybe there are other estate planning strategies we need to implement.”

He pointed out had some of these red flags been recognised and opportunities been taken by advisers, a better outcome could have been reached and the costly court action could have been avoided.

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