Estate Planning

Remember, Trustees control the benefit in the SMSF. In the case of Katz v Grossman, the second trustee used her Trustee powers to have a discretion of the member benefit. In this case, a Member of the Fund died leaving two children – a daughter, who was a Trustee of the family SMSF, and a son, who was a non-Member. The father left $1M in SMSF benefits with a direction in his Will that all his SMSF assets were to be split between his two children equally – Linda and her brother. However, on his death, the remaining Trustee – his daughter – did not take into account his nomination and paid all of the deceased member’s benefits to herself.

What can we learn from Katz v Grossman?

Linda Grossman and her husband have control of the benefits as Trustees, so they were able to pay the benefit without necessarily following the non-binding nomination, which was no more than a consideration for the Trustee to take into account.

The NSW Supreme Court held that she was entitled to take this action under the Fund’s Trust Deed and the Will was ineffective. To download the Supreme Court decision, click on this link.

In Donovan v Donovan case, Ronald Donovan was the sole Member of an SMSF with a Corporate Trustee. The Fund’s Trust Deed allowed both non-binding and BDBN. The Court determined it was non-binding as Mr. Donovan had made a death benefit nomination which did not state it was binding. Therefore, a death benefit payment was made to the deceased’s second wife, effectively disentitling Ronald’s daughter from the previous marriage.

What can we learn from Donovan v Donovan?

A BDBN must clearly state that it is binding on the Trustee.

A key issue in Donovan is whether the BDBN meets the requirements described in Superannuation Industry (Supervision) Regulations 1994. To download the Supreme Court decision, click on this link.

Munro and his second wife were the only Members and individual Trustees of an SMSF. Munro passed away, survived by Suzie and two daughters from his previous marriage leaving a BDBN form nominating that his Will left the residue of the estate to his two daughters (via testamentary trusts). The Court found that the BDBN was invalid as the term ‘trustee of deceased estate’ was not acceptable by the Court.

Suzie’s own daughter was appointed as the replacing trustee for Munro. The trustees announced their intention was to exercise their discretion to pay the death benefit, on the basis the BDBN was invalid, so the SMSF trustees were able to make a discretionary death benefit payment decision.

What can we learn fromMunro v Munro?

More generally, a BDBN must be clearly worded to ensure validity upon a Member’s death. To download the Supreme Court decision, click on this link.

The recent decision of Wooster v Morris describes what happened when a Trustee died and nominated his binding death benefit to his children from his previous marriage. His second wife and co-trustee tried to overthrow a BDBN. The court concluded the Trustee (second wife) failed to act impartially, favouring herself. It was a 3.5-year battle to honour the wishes of the deceased. Read a lawyer’s summary of the case in this summary, SMSF Succession Planning.

What can we learn from Wooster v Morris?

Mrs. Morris, as both individual Trustees and later as the controller of the Corporate Trustee, made decisions which favoured her own interests over those of the other Beneficiaries, despite the duty of a Trustee to act impartially and in the absence of a conflict of interest.

The outcome of Wooster v Morris highlights a key risk of SMSF estate planning. Mr. and Mrs. Morris controlled in excess of $3 million of superannuation and non-superannuation assets at the time of Mr. Morris’s death. Less than four years later, there was only a fraction of that amount remaining. The Court commented on the ‘inherent’ risk in SMSF’s and the ‘substantial conflict of interest’ that may exist.

The BDBN nomination is only a partial solution at best —it is necessary to have further control on the decision to ensure a sensible and efficient outcome. To download the Supreme Court decision, click on this link.

In Ioppolo v Conti, Francesca and Augusto Conti were the only Members and individual Trustees of an SMSF. Mrs. Conti’s death benefit had lapsed before she passed away.

As sole remaining trustee, Mr. Conti exercised the trustee’s discretion to pay the benefit to himself.

What can we learn from Ioppolo v Conti?

Trustees need to ensure that their BDBN is valid and up to date. To download the Supreme Court decision, click on this link.

In Hill v Zuda Pty Ltd,  Hill was the only child of Alec Kumar Sodhy (Deceased) and in a relationship with Ms Murray.

In 2011 the now Deceased made a BDBN. The BDBN was in favour of Ms Murray. The deceased died in 2016. As such, the deceased died more than 3 years after the BDBN.

The Court of Appeal held that it is possible for an SMSF’s Trust Deed to be established to enable a BDBN to last for more than 3 years and this ruling is application to all Australian jurisdictions.

What can we learn from Hill v Zuda Pty Ltd?

Trustees must ensure that the SMSF Trust Deed clearly shows an allowance for a non-lapsing BDBN. To download the Supreme Court decision click on this link.

Anthony and Margaret established an individual Trustee SMSF and Paul, their son, was appointed as a Trustee after the death of Margaret. Prior to the death in December 2021, the deceased Anthony made a BDBN to pay 50% of his death benefits to his second spouse Gayle and another 50% to his legal personal representative, who was his second son from first marriage, Mark.

The Supreme Court of Queensland has determined that this binding death benefit nomination (BDBN) was not binding on the basis that in the context of the Fund’s Deed, the Trustees (Plural) had to be notified on the (BDBN), but it was only signed by the deceased and not notified to Paul, the son who had been appointed in the deceased first wife’s place.

The Court ultimately found it was appropriate to remove the deceased’s son as the Trustee of the SMSF on the basis that his behavior was concerning and his position of conflict of interest.

 To read more on this case, please click on this link.

Pino Corbisieri, who took out an insurance policy with NM Superannuation Pty Ltd and nominated his de-facto partner, James Nguyen (the plaintiff), to receive a 100% death benefit with a BDBN. Upon his death, Pino sent a text message to his family implying that his relationship with Nguyen terminated and SMSF benefits should be paid to his family, not Nguyen.

Based on this evidence Australian Financial Complaints Authority ruled that Nguyen wouldn’t receive anything. Nguyen then appealed with the Federal Court. The Court upheld that the WhatsApp message was ineffective in overriding the BDBN, because Nguyen and Corbisieri were still living together at the event of death and had no real action taken to end the relationship e.g., refusal to cohabitate, refusal to communicate otherwise than in writing, so he was entitled to the benefit.

What can we learn from Corbisieri V Nguyen?

The Trustee cannot override a death-binding benefit nomination over text. To read more on this case, please click here.