If you are considering setting up a self-managed super fund, one of it’s most important functions, apart from investing in assets for your retirement, is to use it to plan for your death. They also offer flexibility both in accumulation phase and retirement phase, and the same flexibility exists when it comes to estate planning, or more importantly, death-benefit planning.
Your will can’t deal with the assets contained within the self-managed super fund, and so it’s vitally important that you make arrangements for these assets separately. For many people, their superannuation will be one of their biggest assets.
Death-benefit planning in a super context relates to the discussion of who you want your remaining super benefits paid to in the event of your death.
How Your Self-Managed Super Fund Will Handle Your Assets After Your Death
There are three ways assets in your self-managed super fund can be handled following your death.
The first case is to have a binding death benefit nomination in place. If a binding nomination is in place, it will set out who the death benefit is to be paid to, and how much of the balance they are to receive. If the binding nomination is valid (for example, the beneficiaries named are eligible under super law to be paid a benefit), it must be followed. In most super funds, a binding nomination is only valid for a maximum of three years. Unless it is renewed at least every three years, it ceases to be binding for the trustees. Whilst it may then give an indication of where you wanted the benefits to go, the trustees aren’t bound to follow it and even if they did, they could be challenged by other possible super beneficiaries. This is where a self-managed super fund can offer some advantages. With a properly-drafted trust deed, it is possible to establish a binding nomination that never lapses. This means that you can forgo the three-year renewal for it to be binding upon your death. Of course, it would be important to re-visit this arrangement because significant life events, like marriage or divorce, might change the way your self-managed super fund assets are distributed.
In the following case, Ioppolo v Conti  WASCA 45 (10 March 2015), Mr and Mrs Conti established an self-managed super fund, the Conti Superannuation Fund, in 2002. At the time Mrs Conti completed a binding ‘Nomination of Beneficiaries’ as part of the membership application. This document directed her death benefits to be paid to Mr Conti.
In 2005 Mrs Conti made a will, which said that her benefits in the self-managed super fund were to go to her four children, from a previous marriage. The court noted this was inconsistent with the binding nomination.
Later in 2005, 3 years after being made, the original binding nomination expired. Another binding nomination was made in April 2006, which directed the trustees to pay the superannuation benefits to Mr Conti, but it expired in April 2009. There was no evidence a further nomination was made before Mrs Conti died in 2010.
Mr Conti, as the now sole trustee, decided that the superannuation death benefit should be paid to him as a pension.
The executors of the will challenged this, arguing that “Mr Conti in his capacity as trustee of the Fund had no power to deal with the interest which the late Mrs Conti had in the Fund.”
However the court found that while Mr Conti could have appointed the executors as trustees of the super fund, he was not required to do so by the law. The court rejected the appeal. Perhaps we will never know what Mrs Conti truly intended, but this is a good example of what happens when a nomination is allowed to expire.
The second case is to have a discretionary death benefit nomination in place. Like a binding nomination, it will indicate who the death benefit is to be paid to, and how much. The difference is that the trustee of the fund, which in the case of an self-managed super fund are any remaining trustees (such as your spouse, for example) plus your legal personal representative (often the executor of your estate), are not bound to follow the nomination. Whilst in most situations the wishes left in a discretionary nomination are followed, trustees often need to take more care as inappropriate allocations can be challenged.
The last case is one where there is no nomination. In these circumstances the remaining trustees have full discretion as to who is paid and how much, provided the distributions are made in accordance with super law. As the deceased’s will is often seen as a guide to where payments should be made, a number of trustees may be inclined to take the “easy” way out and pay the death benefit to the estate, and therefore allow the executor to handle the allocation. Of course, this means your super suddenly becomes an estate asset and may be subject to potential challenge from beneficiaries.
The following case highlights what happens when there is no nomination made. In this case, there had been one but it was no longer valid.
Pursuant to the terms of the fund trust deed, if there was no valid binding death benefit nomination made at the date of death, the trustee would have the discretion to pay Mandie’s death benefit to (1) his dependents or (2) his Legal Personal Representative. Accordingly, the Trustees made a determination to distribute his death benefit between his 3 children equally.
Prior to his death, in December 1995, a formal agreement was made between Mandie and his 2 sons to resolve a dispute pertaining to contributions made towards a family business. The agreement prevented his 2 sons from benefiting from his estate and confirmed that his estate would be distributed as a fixed sum of money to each grandchild, and the residue to go to the daughter.
At the time of his death his estate was worth approximately $289 million.
Evelyn made a complaint to the Superannuation Complaints Tribunal (“SCT”) with respect to the distribution of the death benefit on the grounds that the agreement made in 1995 prevented her brothers from benefiting from the estate. The trustee of the Super Fund argued that they had complied with the terms of the Fund Trust Deed, which obligated them to distribute the benefit to all children.
The SCT found that the trustees had been “fair and reasonable” in their decision to distribute the death benefit to Mandie’s 3 children and that they had complied with the terms of the Fund Trust Deed.
The following points were also reiterated in their decision: that superannuation does not form part of the estate and is therefore not bound by the terms of a Will; that the Trustees would have been bound to any binding nomination that was made, had it been valid at the date of death; and that as a rule of thumb, the trustee should distribute any funds to any dependents first.
This decision was appealed and the above decision was upheld.
It is therefore imperative that if you wish to draft a self-managed super fund that you receive high quality advice in doing so. This area of the law is complex and may affect family members after your death. We offer a free, 10-minute phone consultation – contact us today!