DEALING WITH INTERESTS IN SUPERANNUATION
Failing to have an estate plan that deals with your superannuation therefore leaves your superannuation entitlements at risk of being distributed otherwise than in accordance with your wishes.
An example highlighting why a BDBN is essential is found in the case of Katz v Grossman. In summary, an elderly man passed away with approximately $1 million in his self-managed superannuation fund (SMSF). The deceased member’s daughter was the sole surviving trustee of the SMSF.
The deceased member’s will stated his wish for his superannuation benefits to be split between his two adult children, however he did not have a BDBN.
Due to the requirements imposed by the SISA as detailed below, the daughter acted quickly to appoint her husband as another member and trustee of the fund and promptly paid out the entirety of the father’s benefits to herself with no provision made for her brother.
In litigation commenced by the son, the Court ultimately found that the deceased’s members will was non-binding on his daughter as the remaining trustee of the fund, and that she had acted lawfully within her powers as the surviving trustee.
Without a BDBN in place, your beneficiaries will often have limited recourse against a trustee who decides to act in their own interests at the expense of other family members.
There are a number of cases similar to this, including in Western Australia, that show you cannot necessarily rely on even close family members to carry your wishes into effect if they are not enshrined in a binding death benefit nomination.
REQUIREMENTS OF THE SISA
All members of a self-managed super fund are required by the SISA to be trustees of the fund, or directors of the corporate trustee of the fund. If the fund is a single member fund, the member must be one of two individual trustees or a single director of the trustee company.
Section 17A(4) of the Act gives the fund a period of 6 months after the death of a member to either distribute the member’s benefit, convert to a single member fund (in the case of a 2 member fund) or appoint the legal personal representative of the member as the replacement trustee or director. If this is not done within 6 months of death, the fund will no longer be compliant with the Act for which there may be taxation implications.
Where the fund is a two member SMSF, the remaining trustee has six months to introduce new members to retain its status under s 17A(1) or convert to a single member fund under s 17A(2) and pay out the deceased members entitlements – either in accordance with a BDBN or if none is in existence, at the trustee’s discretion.
With single member funds, major issues can arise in trying to ensure the fund remains compliant under the Act after the expiry of 6 months, most particularly where the member dies without a will. Not only does an application for administration of an Estate tend to be more complex where someone has died without a will, but delays in appointing a replacement trustee or director of a corporate trustee for a SMSF often result where there is a dispute between the administrators about how the superannuation entitlements are to be paid out.
SUPERANNUATION AND FAMILY PROVISION CLAIMS
Despite the pitfalls that accompany superannuation, it is an asset that can be of great assistance to testators who anticipate family provision claims being made against the estate.
This is because, as mentioned earlier, superannuation is typically dealt with outside of the estate, unless there is a BDBN nominating the legal personal representative or the trustees of the fund determine that the benefits are to be paid to the estate.
Having a BDBN in place will ensure the payment of the superannuation benefits is not easily open to attack by a disgruntled party.
Furthermore where superannuation is the largest asset to which the deceased was entitled and is dealt with outside of the estate pursuant to a valid BDBN, a potential claimant may not consider it worthwhile to commence an application for family provision. This may be so where the estate is not of a significant value – as currently any order for family provision would apply only to assets of the estate and would not extend to assets dealt with outside the estate.
Using superannuation can be of particular assistance to remarried spouses who wish to protect one another from family provision claims by step-children. Since 16 January 2013, step-children have been included as “entitled parties” to apply for provision from a step-parents estate where (a) they were financially dependent on the step-parent; or (b) the step-parent received more than $460,000 from the natural parent’s estate (where the natural parent predeceased the step-parent).
An estate plan can be structured so that, if the superannuation entitlements are large enough, they can provide solely for the spouse rather than bequeathing the spouse substantial assets through the estate – which may thereby leave it open to a family provision claim. In this way the step-parent avoids receiving any substantial benefit directly from the estate and can protect their own estate from a family provision claim by a step-child.
Kim Samiotis is the Senior Solicitor of TANG Legal. Her areas of practice include Building Disputes Litigation, Wills and Estates Planning, Succession Planning, Deceased estates and Estate disputes. There are many criteria and conditions that apply to each of the categories and the experienced solicitors at Tang Legal are happy to provide further information on your eligibility to make or defend a claim.
T: (08) 9328 7525 | E: enquiries@TangLegal.com.au