We have written many articles and presented several sessions at our client seminars on these issues over the last few years to demonstrate the complexity involved with getting older, incapacity and death of members in an SMSF.
A case in the Supreme Court of Queensland last year (Narumon Pty Ltd as trustee for John Giles Superannuation Fund) highlighted many of the aspects that trustees and their families need to address.
Basic Facts of the case
- Mr Giles was a single member of an SMSF with a member balance of $4m ($1m accumulation, $3m pension);
- In 2013 Mr Giles lost capacity to administer the Fund, so his wife Mrs Giles and his sister were appointed as Directors of the Trustee Company pursuant to Mr Giles Enduring Power of Attorney document;
- Both Mrs Giles and his sister jointed the SMSF as members;
- Mr Giles died in June 2017, aged 80;
- Mr Giles was survived by his wife and their 16 year old son, as well as 4 adult children from his previous marriage;
- A family provision claim was made against Mr Giles Estate by one of his adult daughters for approx. $200,000.
Without going into detail the case investigated the following issues:
- Were upgrades of the Trust Deed done correctly?
- Was the Binding Death Benefit Nomination (BDBN) for Mr Giles signed and witnessed correctly?
- Does an Enduring Power of Attorney have the power to establish a new BDBN?
- Does an Enduring Power of Attorney have the power to renew/extend an existing BDBN?
- What happens when a non-superannuation dependant is nominated in a BDBN?
- Have pension documents been executed correctly upon commencement of the pension?
Typical issues with blended families (not necessarily in the Narumon case) often result in the surviving controller of the SMSF (usually the current spouse) possibly having to direct assets of the deceased to:
- Former spouse;
- Children from a previous partner.
It is always a higher risk in these instances of the surviving controller of the SMSF not complying with their trustee obligations. Instead they may divert the assets of the deceased member for the benefit of themselves or their own family.
There have been several cases where this has occurred and unfortunately by the time these cases are resolved either the initial funds are unrecoverable (been spent) or legal fees over 2 or 3 years have eroded a substantial portion of the SMSF member balance.
How do you decrease these risks?
- By understanding the consequences of what happens when you die, especially if your Will and your SMSF Binding Death Benefit Nomination (BDBN) have different instructions;
- By ensuring your BDBN is signed in accordance with the rules of the Trust Deed;
- By ensuring the right people are in control of the right assets when you are incapacitated or die;
- By reviewing your estate planning arrangements on a regular basis.
If you need to know more, you need to visit the SMSF specialist team at Green Taylor Partners.