A recent Supreme Court case in WA highlights the need to carefully consider superannuation when estate planning and raises a number of key issues for consideration.

This Super Hot Spot will outline the facts of the case and then highlight the key points to consider.

Loppolo & Hesford v Conti [2013]

The case centred on the surviving trustee’s decision to ignore the wishes of his deceased wife, by paying her superannuation entitlement to himself rather than to their children.

The Self-Managed Superannuation Fund’s trustees were Mr & Mrs Conti.   Upon the death of Mrs Conti, and to comply with superannuation laws, Mr Conti had to either appoint a 2nd individual trustee or change trustee entirely to a Corporate Trustee.  He chose to appoint a Corporate Trustee, of which he was the sole Director.  Mrs Conti’s executors (her children) argued in court that they, as her executors, should have been appointed on her behalf.  The court rejected this argument as there is no requirement to do so under superannuation laws.

As sole Director of the Corporate Trustee, Mr Conti had full discretion over the affairs of the fund, including the payment of death benefits.

Mrs Conti had previously prepared Binding Death Benefit Nominations (BDBN) directing the trustee to pay her entitlements to her children.  At the time of her death, however, these nominations had lapsed and were no longer valid.

In the absence of a valid BDBN, Mr Conti as trustee was enabled to pay Mrs Conti’s superannuation entitlements according to his own discretion. 

While the lapsed BDBNs and Mrs Conti’s Will showed her wish to distribute these monies to her children, Mr Conti elected to pay all of the entitlements to himself.

The children challenged this decision.

The court found that Mr Conti had acted in a bona fide manner in his capacity as the trustee of the fund, and upheld his decision to pay the superannuation entitlement, at his discretion, to himself.  

Key issues for consideration:

This case highlights a number of important factors that must be considered when formulating an estate plan that involves superannuation, and in particular a Self-Managed Superannuation Fund.

One critical point is that superannuation entitlements do not ordinarily form part of the deceased’s Estate.  They are part of a separate trust and the trustee of the fund determines where these are paid (subject to the Trust Deed & BDBNs).

BDBNs can play a key role in superannuation estate planning.  As this case shows, it is important for members to ensure that the BDBNs are valid, and having the ability to enter into a non-lapsing nomination or agreement with the fund is important.  This is not available under all Trust Deeds.

While BDBNs can be very useful, binding the trustee into a certain course of action, in some situations this action may not be appropriate at the moment of death.  An example of this might be a nomination that directs the entitlement to children who, at the time the BDBN is entered, are tax dependents (tax free), but at the time of death are not, and may be subject to up to 16.5% tax on receipt of the death benefit.  As with a Will, a BDBN should be reviewed regularly.

The case also highlights the need to carefully consider who the trustee of the fund is – either individuals or a corporate trustee – and more importantly, who will control the fund upon the death of one member.

Each situation is unique, and each member may have different wishes – careful planning is the key.