A couple of days ago a friend of mine told me his client had just died leaving a sizable estate, gifted to the children of his first marriage via his will, and a large SMSF accumulation balance, directed to his current spouse by way of a binding death benefit nomination. The client knew he was going to die and had taken measures to safeguard his wishes so what could go wrong? Quite a lot as it turns out.
He was the only member/director of his SMSF. He owned all the shares in the corporate trustee. He’d appointed his son, from the previous marriage, as his executor. What’s wrong with this picture?
The son, as his LPR now takes over the shares in the corporate trustee and controls the SMSF. There is, it seems, a less than favourable relationship between the surviving spouse and the children from the deceased husband’s previous marriage. The children will inherit the estate as their dad intended, but will the super balance be paid out? Hopefully it will but, as trustee, the LPR can challenge the binding death benefit nomination and, potentially, reject its validity. The super balance would now be payable at the trustee’s discretion. There are some safeguards that the “intended” beneficiary may invoke but these can be very expensive. There are a number of cases, Wooster V Morris is probably the worst, where the claimants won but the costs outweighed the super balance. In such an action the wording of the binding death benefit nomination and of the deed, not necessarily the current one if it’s been updated incorrectly, is critical.
This situation need not have arisen, particularly as professional advice was sought. If the shares in the corporate trustee had been altered to joint tenancy so that ownership passed automatically to the wife, then they would not have formed part of the estate. Further, as the wife was to inherit all of the superannuation balance of the single member fund it is surprising that she was not made a director and, though not necessary under the circumstances, a member as well.
A sloppy approach to SMSF estate planning can have nasty repercussions. Let’s hope this is not going to provide another case law example.
