In a 2014 Western Australian Supreme Court Decision, four children did not receive $648,586 in superannuation proceeds gifted to them by their mother. This case should serve as a reminder for all members of a Self Managed Super Funds. In the case of Ioppolo & Hesfordv Conti  WASC 389, the deceased mother’s valid will gifted the superannuation proceeds to four children, with an express statement that she did not want any entitlement paid to her husband.
The husband was the other trustee of the self managed superannuation fund (“SMSF”). On the wife’s death, the husband created a company to be the trustee of the SMSF – a standard occurrence and in compliance with the law regarding superannuation funds. The husband took specialist tax and legal advice and determined to pay the wife’s SMSF balance of $648,586 to himself, which was allowable under both the SMSF deed and the law.
Two daughters (trustee’s of the mother’s estate) challenged the payment to the husband, claiming that they should have been appointed as trustees of the Superannuation fund and that the husband had acted in bad faith. The Western Australian Supreme court ruled for the husband, finding:-
- that there is no obligation to appoint the daughters as trustees; and
- that the husband was entitled to exercise the discretion granted under the law and the SMSF Deed.
On these facts, we do not find it surprising the Court ruled in favor of the husband. When thinking about a Self Managed Super Fund and estate planning:-
- proceeds of your superannuation fund will only form part of your estate (distributed via your will) when the trustee exercises the discretion to pay the proceeds to your personal representatives – it is not automatically part of your estate and must not be thought of this way;
- your trustees do not have the ability to require they be appointed as trustees of your SMSF – and therefore no ability to influence the decision where your superannuation proceeds are paid; and
- there are ways you can bind the remaining trustees of your superannuation funds, through Binding Death Nominations or particular agreements – but without these being in place your SMSF proceeds are at the mercy of the remaining trustee.
Proper estate planning is essential to ensure that these types of issues do not arise after your death. If the Wife had created a Binding Death Nomination when creating her last will, the husband would have had no ability to pay the proceeds to himself under the deed or at law and this case avoided.