Meticulous estate planning can prevent heartache and hassle
A sloppy approach to SMSF estate planning can have nasty repercussions, says one of the industry’s most respected advisers.
David Busoli, principal of SMSF Alliance, said something as simple as the proper wording in a binding death benefit nomination can save a lot of hassle and heartache in the event of a dispute.
Mr Busoli gave an example of a client who had died leaving a sizeable 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.
In this case, the client was aware that he had limited time and took measures to safeguard his wishes believing that he had done all that was required to ensure his estate was divided to his specifications.
The client was the only member/director of his SMSF and owned all the shares in the corporate trustee. Before his death he had appointed his son, from the previous marriage, as his executor.
With his son now acting as his LPR, he was in control of the shares in the corporate trustee and the SMSF.
Although it seemed as if the client had done all he was supposed to do, the client did not anticipate the deteriorating relationship between his current spouse and the children from his first marriage.
As the LPR, the son can challenge the binding death benefit nomination and, potentially, reject its validity meaning that the inheritance of the estate as per the client’s wishes would be in jeopardy.
“The super balance would now be payable at the trustee’s discretion,” Mr Busoli said.
“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.”
Mr Busoli said the 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,” he said.
“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.”
