Estate Planning, Trusts

Corporate trustee control crucial in death

SMSF corporate trustee shares

Determining the ownership of shares in an SMSF corporate trustee company when a member dies is critical to effective estate planning.

A sector mentor has highlighted the importance of passing the ownership of shares in an SMSF corporate trustee company to an appropriate person in order to ensure the assets of a single- member fund are distributed to the right party or parties in the event of the member’s death.

SMSF Alliance principal David Busoli used the circumstances of an individual who had just died as the sole member and director of the corporate trustee of a super fund to illustrate his point. In addition, the member owned all of the shares in the corporate trustee company.

The deceased member wanted the assets of his estate distributed to his children from a previous marriage and the large accumulation balance in his SMSF to be paid out to his current wife. The superannuation death benefit was to be directed to his spouse via a binding death benefit nomination. Unfortunately, the relationship between the children and the surviving spouse was not amicable.

The SMSF member had appointed his son from his previous marriage as the executor of his estate, which in turn made him his legal personal representative (LPR) and, as such, in control of the shares in the SMSF corporate trustee company.

According to Busoli, an overlooked detail like this can lead to the unravelling of an estate planning strategy.

“As trustee, the LPR can challenge the binding death benefit nomination and, potentially, reject its validity. The super balance would now be payable at the trustee’s discretion,” he noted.

“There are some safeguards that the ‘intended’ beneficiary may invoke, but these can be very expensive. There are a number of cases, Wooster versus Morris is probably the worst, where the claimants won but the costs outweighed the super balance.

“In such an action the wording of the binding death benefit nomination and of the deed, not necessarily the current one if it’s been updated incorrectly, is critical.”

He pointed out there is a simple solution that can completely nullify the risk of the SMSF death benefit being paid out incorrectly.

“If the shares in the corporate trustee had been altered to joint tenancy so that ownership passed automatically to the wife, then they would not have formed part of the estate,” he said.

“Further, as the wife was to inherit all of the superannuation balance of the single-member fund, it is surprising that she was not made a director and, though not necessary under the circumstances, a member as well.

“A sloppy approach to SMSF estate planning can have nasty repercussions.”

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