Aug 272014
 

Death!

Now has that got your attention?

If not, how about enriching all the lawyers?

When you die, your superannuation does not form part of your estate unless your superannuation fund trustee sends it to your estate. Your superannuation is for your benefit, but in all cases you personally are not the legal owner of the fund assets (such as cash, shares, property and for some creative trustees – artwork, wine and holiday homes). The legal owner is the superannuation trustee, not you personally, and the trustee is bound by the trust deed in paying out the trust fund.

The aim of this article is to dispel the common misconception that you can leave your superannuation to someone in your will without doing anything else. You cannot. Instead, super is usually distributed by your super trustee according to a Binding Death Benefit Nomination (BDBN). Although this seems straight forward, your BDBN and gifts under your will may conflict. Two cases illustrate this point.

Ioppolo & Hesford v Conti – New will to kids, super goes to old husband

A Western Australian woman, estranged from her husband, signed a new will leaving her super proceeds to her 4 kids and not to her husband. However, she forgot to amend her SMSF trustees and beneficiaries. When she died in 2010, her estranged husband was still sole trustee of the fund and was still named as the sole recipient of her death benefit. Her estranged husband paid the death benefit to himself. The children were predictably in uproar and applied for relief in the WA Supreme Court. However, the court said the BDBN to the husband was valid. The children received none of their mother’s super.

 Click the link below to read the full case:

http://www.austlii.edu.au/cgi-bin/sinodisp/au/cases/vic/VSC/2013/594.html?stem=0&synonyms=0&query=title(Wooster%20and%20Morris%20)

 Wooster v Morris – Super goes to nominated old kids, not to new surviving wife

 In this recent Victorian case, Mr Morris and his second wife, Mrs Morris, were trustees of a SMSF. Mr Morris died leaving Mrs Morris as the surviving trustee of his SMSF. For some reason, Mr Morris’s children from his first marriage and not his wife, Mrs Morris, were named as beneficiaries in his BDBN. Mrs Morris got legal advice – her lawyers said the BDBN was invalid and on the back of that advice, in her capacity as trustee, she tried to transfer Mr Morris’s super entitlement to herself. Mr Morris’s children from his first marriage objected, and the matter was determined by a Special Referee. The BDBN was held to be valid. His children got the super and Mrs Wooster got to pay her own costs and those of the children to fight the case. The whole super fund was used up in legal costs.

 Click the link below to read the full case:

http://www.austlii.edu.au/au/cases/wa/WASC/2013/389.html

 There are simple lessons to learn from these unfortunate cases:

  • Review your BDBN when you change your will and make sure your bequests are consistent;
  • Make sure your BDBNs are validly signed in accordance with your SMSF Trust Deed; and
  • If you are a SMSF trustee and are uncertain about the validity of a BDBN or payment of death benefits, don’t just get legal advice: ask your lawyer about whether you should get a court determination to limit your personal liability for incorrect distribution of super proceeds.

 Contact Peter McNamara for your estate planning advice today. 

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