Attwood Marshall Lawyers Legal Practice Director Jeff Garrett recently joined Robyn Hyland on Radio 4CRB to discuss the world of self-managed superannuation funds (SMSFs) and the vital role estate planning plays in ensuring your superannuation assets are distributed in accordance with your wishes after you are gone. A case study of Ioppolo & Hesford v Conti.
The popularity of SMSFs in Australia
SMSFs, or self-managed superannuation funds, offer individuals greater control over their investment decisions, providing flexibility and potential tax benefits.
According to the latest ATO data, around $878 billion is invested in self-managed superannuation assets, indicating that more Australians are recognising the benefits of managing their superannuation independently.
However, setting up a self-managed superannuation fund requires careful consideration, especially when determining who to appoint as the trustee and how the fund should be structured.
Equally critical is understanding how estate planning intersects with SMSF management to ensure that a comprehensive plan is in place to determine who your superannuation benefits will pass to after you die and who will control the fund.
In the following case, we highlight the pitfalls that can unfold when individuals fail to properly plan for the future of their self-managed superannuation fund.
Ioppolo & Hesford v Conti: A Cautionary Tale
A case from some time ago still holds significance as it involves one of the most common SMSF structures seen today.
The WA case of Ioppolo & Hesford v Conti is particularly illustrative and not uncommon, considering that ATO data reveals approximately 69 per cent of all SMSFs have two members as trustees, which are typically cohabiting or married couples who combine their funds.
In this case, Francesca Conti and Augusto Conti were married but estranged.
They had an SMSF, which they were the sole members and trustees.
In 2005, Francesca made a Will appointing two of her four children as executors. In her Will, she left instructions for her executors to distribute her SMSF entitlements to her children upon her passing.
The value of the SMSF was approximately $648,586.
Francesca explicitly stated that she did not want any of her superannuation to be paid to her estranged husband.
In August 2010, Francesca passed away. As the only surviving trustee and member, Augusto assumed control of the SMSF following her death.
He then distributed Francesca’s superannuation benefits to himself.
Francesca’s children applied to the court, arguing that as executors of their late mother’s estate, they were entitled to be appointed as co-trustees of the SMSF.
If the court agreed, then the children would have had obtained some level of control over how the SMSF benefits were to be distributed.
The executors also argued that by ignoring Francesca’s directions in her Will about how she wanted her SMSF funds to be distributed, the trustee (her estranged husband) had not acted in ‘a bona fide manner’ as required by the trust deed.
The court found that there was no requirement to allow the executors to be appointed as co-trustees in this case.
The court also rejected the argument about the trustee not acting bona fide and stated that the trustee was entitled to ignore the instructions in the Will.
Despite their efforts, Francesca’s children failed to overturn the trustee’s decision.
The court found the remaining trustee, Augusto, was entitled to distribute the superannuation benefits at his discretion, ultimately dismissing any wishes Francesca had left in our last Will.
Key issues
The issue in this case was that Francesca and her husband, Augusto, were the only trustees and members of the SMSF.
When Francesca passed away, Augusto retired as the fund’s trustee, and appointed a corporate trustee – whom he controlled.
With a corporate trustee now managing the fund, the fund satisfied the requirements of a single-member SMSF under the Superannuation Industry Supervision Act.
Francesca had failed to establish a valid death benefit nomination for her SMSF.
Given that superannuation benefits are non-estate assets and fall outside the scope of a traditional Will, this necessitates specific arrangements, such as creating a binding death benefit nomination to ensure your wishes are carried out regarding how you want your super to be handled when you die.
Despite Francesca’s intentions outlined in her Will, the discretion ultimately lay with the trustee.
This case underscores the importance of proper estate planning documentation, especially around non-estate assets that are often overlooked by many people when drafting their Will.
Read more: Understanding assets that you cannot leave to your beneficiaries in your Will
Planning for non-estate assets
Superannuation is a non-estate asset.This means that a Will can only deal with superannuation if the trustee pays the benefits into the deceased estate.
But the trustee must be bound to do this (or they may choose to do this at their discretion).
Without such arrangements, superannuation generally cannot be disposed of under a Will.
To validly deal with SMSF benefits, you need to have in place either:
- A non-binding death benefit nomination;
- A binding death benefit nomination; or
- A death benefit agreement.
These documents are relatively straightforward to complete. The forms can be downloaded from your superannuation’s website or be requested.
In the form, you must set out the proportion of the benefit to be paid to each beneficiary. You can also include the type of benefit payment (such as a lump sum payment or a pension-style payment).
You then need to sign the document in the presence of two witnesses – who are not nominated as beneficiaries and send the completed form to the trustee.
Most nominations are valid for three years from the date they are signed. However, some funds offer non-lapsing nominations.
You can renew, change, update, or revoke your nomination anytime.
Attwood Marshall Lawyers – experts in estate planning
SMSFs can be complex structures, but they often hold assets which have a significant dollar value. Make sure you get the right financial advice from an accountant and legal advice from an experienced estate planning lawyer to put the necessary documents in place to ensure these assets go where you want them to. Many people have large chunks of their wealth sitting in SMSFs and it is very important to properly deal with these assets in your overall estate planning. A simple Will cannot deal with these complex issues and you could be putting your hard-won assets at risk by not getting the right advice.
Attwood Marshall Lawyers have one of the largest and most experienced Wills and Estates teams in Australia. Our estate planning lawyers practice exclusively in this specialised area of law and have the skillset to put in place the most appropriate strategies when succession planning. We want to help you plan for the future, protect your assets and your family, and preserve your wishes.
Binding Death Benefit Nominations can be important when completing your estate plan. However, if these documents are not prepared and signed correctly, serious consequences may cost your loved ones tens or hundreds of thousands of dollars in legal costs and extra taxes.
Discussing your intentions with an experienced estate planning lawyer with a comprehensive understanding of succession planning and superannuation is essential.
To discuss your estate planning needs, contact our Wills and Estates Department Manager, Donna Tolley, any time on direct line 07 5506 8241, email dtolley@attwoodmarshall.com.au or call 1800 621 071 any time. You can also make an appointment online by using our online booking app.
