What SMSF trustees can learn about estate planning from court

Get it right: Your BDBNs and your will need to be consistent.

With each new court case, our understanding of death benefits expands.

A recent case highlights just how important it is to get it right, both in wills and in Binding Death Benefit Nominations (BDBN).

The details of the case

In October 2013, the Western Australia (WA) Supreme Court handed down a case involving a death benefit totalling about $650,000 of Francesca Conti from The Conti Superannuation Fund. The two members and individuals of this fund were Francesca and her estranged husband, Augusto Conti.

Francesca died in early August 2010. Probate was granted for her will in October of that year with two of her children, Rosario Ioppolo and Grace Hesford, appointed as executors.
Her will stated that she wanted her super fund death benefit to be paid to her four children and also specifically said she didn’t want any of this benefit paid to her husband.

Upon her death, Augusto was the sole trustee until February 2011 when Augusto Investments Pty Ltd was appointed as the fund’s corporate trustee and Augusto was appointed its sole director.

The fund had been created in July 2002 and when joining the fund, Francesca had signed an indicative non-binding nomination saying she wanted Augusto to receive her death benefit.

In July 2002 and April 2006, Francesca had completed two BDBNs. Both said that her husband was to be the sole recipient of her death benefit. In relation to these nominations, the court said the following:

“A binding beneficiary nomination lapses after three years. Consequently, neither was of any force and effect as at the date of death of the deceased. Curiously, the second of these two binding beneficiary nominations was in effect as at the date the deceased made her will. So the direction in her will that the benefit be paid to the nominated beneficiaries was not a direction with which the trustee could comply at the date the will was signed.”

Will complexities

The comment about three years is fascinating. The three year lapsing rule typically doesn’t apply to SMSFs – this applies to funds regulated by APRA – unless it has been specifically inserted into the fund’s trust deed. It’s unknown if this was the case here.

Some lawyers who specialise in super and trust law have argued that in some cases the terms of your will could be viewed as a BDBN. The WA Supreme Court seems to have rejected this view (assuming it was advanced by the plaintiffs) on the basis that, at the time it was executed, a valid BDBN was in place.

By now you can probably guess why this case came about – Francesca’s husband refused to pay her benefit to their children and had decided to pay it to himself. The family couldn’t reach an amicable agreement themselves and the court has been tasked with sorting the mess out.

The outcome

The children failed in their bid to receive their mother’s death benefit and it seems that they’ll have to pay the defendants’ costs. The case in question is called Ioppolo & Hesford v Conti [2013] WASC 389.

In another case in the Victorian Supreme Court, known as Wooster v Morris, the surviving trustee failed to adhere to a Binding Death Benefit Nomination, which had been independently deemed to be valid.

In this particular case, the second trustee was the deceased’s second spouse and the beneficiaries of the BDBN were the children of his first marriage. The court decided that the death benefit had to be paid as the deceased wished and the super fund’s trustee lost the case (and had costs awarded against her).

In super funds with two or more members, it’s essential to make sure that your other trustees aren’t only happy with your BDBN but are also willing to implement it. This wouldn’t stop disgruntled beneficiaries from seeking to overturn your wishes, nor will it stop your co-trustees from acting mendaciously at a later date.

Ultimately, we just have to accept that there is only so much we can do to make sure our families are adequately and suitably cared for, if something happens to us.

This WA Supreme Court case makes it clear that your BDBNs and your will need to be consistent. It remains an unfortunate mystery as to why this wasn’t done in this case.
 
Tony Negline has worked in financial services for more than 25 years and has been heavily involved in self-managed super funds since mid-1994. He writes about SMSF matters for a wide range of audiences including accountants, auditors, financial advisers and SMSF trustees.