In 2002 the deceased and her husband established a self-managed superannuation fund known as The Conti Superannuation Fund (the CSF), both of whom were trustees and members.
The deceased died in 2010 having made her last Will in 2005 appointing two of her children as executors. The deceased expressed a wish in her Will that her superannuation be paid to her four children and not her husband.
The deceased had approximately $648,000 standing to her credit in the CSF. As is common in self-managed superannuation funds, indeed superannuation funds generally, in the absence of a binding death benefit nomination, it is within the trustee’s sole discretion to whom the deceased’s entitlements are paid upon death, provided the beneficiary is a spouse, child or a dependent. In this case, there was no binding death benefit nomination.
After the deceased’s death, the husband remained the sole trustee who later appointed a corporate trustee of which he was the sole director.
In exercising its discretion, the trustee must take into account the wishes of the deceased including those specified in non-binding nominations, previous binding nominations (which had lapsed) and also a Will. However, a trustee is not bound by these directions.
The trustee ultimately declined to follow the wish stated in the Will and exercised its discretion in favour of the husband.
The executors argued that the trustee (who you will recall is a trustee company controlled by the husband) did not exercise its discretion bona fide taking account of all potential beneficiaries, essentially preferring the husband’s own interests. The Court found that the trustee was entitled to ignore the direction in the Will and there was no evidence that the discretion was not exercised bona fide. Importantly, the Court relied upon the fact that the trustee had received legal advice that it was entitled to exercise its discretion in the manner it did.
The second argument advanced by the executors was that the deceased’s legal personal representative(s) should be appointed as co-trustee(s). The Court found that whilst the legislation permits a legal personal representative of a deceased member to be appointed, it does not require it.
Finally, the third argument raised was that the trustee’s discretion should be reviewed. This argument did not gain much traction in the decision save to make clear that a trustee’s discretion can only be reviewed in very limited circumstances (presumably, breach of trust).
The executors’ application was dismissed.
There are such stringent requirements in relation to the administration and management of self-managed superannuation funds, so why wouldn’t you apply as much time and effort to ensuring that your estate planning is as comprehensively taken care of?
In considering estate planning, whether as a professional or in relation to your own personal affairs, it is vital to ensure you have properly considered and put mechanisms in place so that your superannuation passes to whom you wish and the person you wish to be in control is properly appointed. Remember, estate planning does not just involve drawing up a Will.
Of course, there is also the tax man who always has to be considered!
I shall leave you with a very apt comment from Master Sanderson in this case:
Self-managed superannuation funds (SMSF) are now a feature of the financial fabric of this country. They provide an important vehicle through which individuals can invest for their retirement. But as with any legal construct problems can arise in the administration of a fund. Mercifully such disputes are rare. But this case is an example of how problems can arise within a family and lead to disputes relating to a superannuation fund.