Superannuation benefits are not automatically assets that fall within the estate of a person after their death. Without additional and proper written directions, what happens to a person’s super after death is decided by the Trustee of that person’s super fund.
What is a Self-Managed Super Fund (SMSF)?
A self-managed super fund is a body that helps provide for individuals retirement. Members of an SMSF are typically the trustees of the fund, or they may be the directors. Essentially, the members of the fund run the fund for their own benefit.
With well over half a million SMSFs now registered in Australia, more and more people have direct control over their superannuation as trustees of their own funds. However, without careful consideration and planning, your superannuation funds may not end up where you want them to after your death, as was recently the case in Western Australia.
In a recent WA case, Ioppola v Conti, a husband and wife were the only members of a SMSF. In her Will, the wife explicitly stated that her substantial superannuation funds were to be divided between her children and not her husband.
However, she did not have the proper written documentation prepared in her SMSF to reflect this choice. Upon her death, her husband, despite the Will paid all his wife’s funds to himself. This power was given to the husband under the SMSF’s trust deed, which granted all trustees broad discretion.
The children challenged the actions of the husband in the Supreme Court of Western Australia, arguing that as executors they should be appointed as joint trustees of the SMSF along with their father, to have some measure of control over the distribution of their mother’s funds. This argument was rejected on the grounds that while superannuation legislation does allow for such an appointment, it is not mandatory.
The children also argued that the trustee did not act in a bona fide manner as required by the SMSF’s trust deed. This argument was also rejected on the basis that the trustee was entitled to ignore the directions of the Will when making their decision.
The court held that the husband was able to retain the superannuation.
How to Avoid Similar Situations
This situation could have been avoided if the wife had a binding death nomination or a death benefit agreement in place at the time of her death.
- A binding death nomination is a written direction from a member to their superannuation trustee setting out how they want their superannuation benefits to be distributed on death.
- A death benefit agreement is an agreement between an SMSF member and the trustee, which specifies how the member’s benefits are to be paid after their death.
A binding death nomination must be renewed every 3 years while a death benefit agreement is permanent until revoked.
A solicitor who is preparing a Will for you can identify issues that may arise and ensure that your true intentions are properly documented.
The above illustrates why it is best not to use DIY Will kits and to get proper advice, as it gives your loved ones proper protection and gives you peace of mind.