An SMSF legal specialist has advised practitioners and trustees that being aware of a set of lesser-known legal principles is key to achieving a favourable outcome when planning for the potential transfer of superannuation benefits after the death of a family member.
“When it comes to succession planning, we are using an often poorly understood set of rules called equity. [It’s] a big deal when it comes to things like what wins between a binding death benefit nomination or a reversionary pension,” DBA Lawyers special counsel Bryce Figot said.
“You could be held to a very high standard and equity governs you when it comes to SMSFs and can be very unintuitive.
“Most people aren’t even familiar with the concept of a court of equity, but that’s what we’re dealing with here.”
Figot pointed to a recent legal case, in which an individual had passed away without a will and had not made any nominations within his four superannuation funds, but his widow applied to personally receive his super benefits, as highlighting the importance of understanding the rules of equity.
“Justice Martin applied the rules of equity to take money away from a widow. He said: ‘I observed that in the unfortunate circumstances posed, resolution could have been avoided if the deceased had done two things differently,’” he said.
“Make a will preferably. The will expressly says in explicit terms that there is no difficulty for his widow if she was so appointed [as] his executor enacting exclusively in her own interests by applying to receive personally and receiving the full entitlement to any super fund proceeds to which he might be or become entitled in the event of his death.
“So you want to make sure that’s in the will or else you get bad outcomes [and] then you want to identify who will be running the SMSF upon the member’s death.”