SMSF trustees who plan on making a beneficiary of the fund the executor of their estate need to pre-plan how that person can address any conflict of interest regarding death benefits as once they have commenced in the role they cannot renounce it, according to an SMSF legal expert.
Cooper Grace Ward Lawyers partner Scott Hay-Bartlem said: “The legal person representative, who is an executor or administrator, cannot make a claim on super benefits for themselves because they have a conflict of interest.”
Speaking during a presentation at the ASF Audits Technical Seminar 2021 last Friday, Hay-Bartlem said the nomination of a beneficiary as executor would mean that person would be “wearing two hats”.
“They are saying ‘I’m the surviving spouse, I want the super’ and by the same token ‘I’m the executor or the administrator of the estate and I have an obligation to pour the super into the estate’,” he said.
In order to avoid legal repercussions, he noted SMSFs need to prepare in advance of the trustee’s passing with consideration to the current family status.
“Maybe we need to forgive the conflict, so a lot of the time when we’re doing wills we’re actually putting a clause in which excuses the conflict and allows the surviving spouse to claim the super,” he said.
He said payments could be directed by the use of a binding nomination, which could direct them to the beneficiary who is acting as executor, or a different person, apart from the beneficiary, could be the executor.
In addition, the appointment of an executor can be renounced, but he warned the process will need to be initiated in a time appropriate manner.
“Renunciation as executor is something you need to be on top of and get on top of it really early on,” he said.
“Once you move to ‘intermeddle’ in the estate as an executor, you then can’t renounce that role, so you’ve got to catch it early.
“So looking at these issues is something we need to be on top of pretty early after someone’s died or it might be too late.”