The run of legal disputes related to estate planning and superannuation has reinforced the need for SMSF advisers and clients to be aware of their current trust deed documentation and get informed advice where it is required, according to a senior SMSF adviser.
Cooper Partners financial services director and head of SMSF and succession Jemma Sanderson highlighted that a dozen notable legal disputes, all taking place since 2013, have hinged on the wording of superannuation trust documentation, with some cases in particular making a specific mention of that in their judgment.
“Superannuation is one of the largest assets next to the family home and litigation is rife as superannuation can completely circumvent the estate,” Sanderson said at The Tax Institute Tax Summit in Sydney last week.
“If the intention is for superannuation to bypass the estate, make sure the documentation is correct, but if it goes into the estate and forms part of the testamentary trust, everything still needs to line up.”
She said the cases were difficult at times for the families involved, but they provided worked examples for SMSF practitioners of how things work in the area.
“We have these outcomes and what has been tested to help provide advice to our clients correctly,” she said.
“There has been a lot of consideration of whether a binding death benefit nomination (BDBN) is binding and what makes a nomination binding, as well as who can step in as trustee in a fund, because it is not automatically the executor.”
She said the case of Munro v Munro (2015) hinged on the terminology of the BDBN, which was ruled as being invalid, and superannuation benefits sidestepped the estate entirely.
Additionally, the case of Marsella v Wareham (No 2) (2019) was important because it tested the issue of the exercise of discretion and whether it was exercised unreasonably and in bad faith.
“In these cases, the ultimate outcome has been to read the deed for the fund, but also to look at the documentation in place,” Sanderson noted.
“Do you have complete deeds that have been executed correctly, that have been updated in line with amendment clauses, or death benefit nomination documentation that accords with what the deed requires?
“The other consideration in all these cases, and particularly McIntosh v McIntosh (2014), Burgess v Burgess (2018) and Gonciarz v Bienias (2019), was that in the judgment comments were made these disputes could have been entirely avoided by having a BDBN in the superannuation account and/or a will.
“They brought to the fore that every single client has a will and that the last thing you want is for your client to be the next case that goes through to the courts.”