In late 2013, the WA Supreme Court handed down the decision of Ioppolo v Conti [2013] WASC 389. The decision was then appealed and the outcome of the appeal was handed down earlier this week.
The original case involved Francesca Conti and Augusto Conti, who were married and both the trustees and members of an SMSF. Francesca had children who were not Augusto’s biological children.
The SMSF’s trust deed stated that unless there was a binding death benefit nomination, death benefits were to be paid at the trustee’s absolute discretion, said DBA Lawyers director Bryce Figot, explaining this is a “very common provision”.
Francesca did not leave a valid binding death benefit nomination when she died. In her will, however, she stated that her entitlements in the SMSF were to be paid to her children and specifically stated that no SMSF death benefit be paid to Augusto.
With Augusto left as the sole trustee, he decided to pay all of Francesca’s benefits to himself and to the children, Mr Figot said.
“It appears that he had all the power to appoint a new trustee. Accordingly, it seems that he arranged for a company called ‘Augusto Investments Pty Ltd’ to be appointed as the trustee of the SMSF — of which he was the sole director and shareholder,” Mr Figot added.
Two of Francesca’s children were executors of Francesca’s estate, and they brought an action on several grounds.
“The distribution of the death benefits was at the heart of the dispute,” Mr Figot said.
In the 2013 decision the plaintiffs, who were Francesca’s children and executors, argued that Francesca’s legal personal representative must be appointed as trustee of the fund because the fund was required to remain an SMSF.
This argument failed in the 2013 decision and the plaintiffs lost again on appeal.
“There is a common misconception that a trustee’s legal personal representative automatically steps into the role of trustee of the SMSF. This is typically wrong. Rather the answer will depend on whatever the SMSF’s trust deed says,” Mr Figot said.
“Naturally, whoever is left holding the ‘purse strings’ has tremendous power. Who this is depends on what the deed says and there is huge variability in this regard. Accordingly, advisers should carefully check the SMSF’s deed to determine who will be the trustee upon death,” he added.
The plaintiffs also argued in the 2013 decision that because Francesca’s will directed all benefits to be paid to her children, Augusto had not acted in good faith in paying himself. They lost both the 2013 decision and the appeal.
“Historically, it has been difficult to make a successful ‘bad faith’ argument and this case was no exception,” Mr Figot said.
“Whenever a trustee has an absolute discretion, this is never an absolute discretion in the sense that most people understand the term,” he added.
How would a typical CST deed have fared in this dispute?
[quote name=”keith”]What about the legal firm that prepared the will. Did they not advise her to complete a binding nomination in favour of her LPR.[/quote]
The fact is that at present most non-specialist lawyers do not understand that superannuation is not automatically an estate asset. I have reviewed many wills that purport to “will” superannuation entitlements and assets of family trusts (or even the family trust itself!). It is therefore crucial that the client’s adviser is involved in (and in my view should lead) any estate planning exercise, and ideally working with a properly qualified and experienced specialist estate planning lawyer.
Given there is no mention of a financial adviser, it seems likely none involved or for sure they would have been held liable.
And certainly not the accountants for the SMSF’s job, albeit many accountants provide bucket loads of AFSL advice without an AFSL.
But how can the lawyer not be sued for not providing correct overall estate planning advice?
It seems there is more to come before this is finalised?
What about the legal firm that prepared the will. Did they not advise her to complete a binding nomination in favour of her LPR.
@Chris – I can see a big problem here because it happened to me. What if she didn’t know that the super fund trust deed clause overrode the instructions in her will or her financial adviser, if she had one, did not advise her of this scenario? If I were the plaintiffs I would be asking the question of the Financial adviser what his/her advice was to their mother and take it from there.
I don’t see the problem here. If the wife wanted to get the children off her back about who inherits her super she shows them her will, whilst at the same time making sure there is no binding death nomination in place so that the husband gets the assets. Sorry kids, but mum fooled you.We will never know the intention of the deceased.
This strategy, to say one thing in the will and another in the super fund, may not be nice, but it works very well at keeping family members happy whilst making sure assets go to to the right people.
ps. You can set up a similar outcome using family trusts and to a lesser extent, jointly owned assets.
There are many cases prior to this. So many SMSF established but so little understanding of estate planning processes. Unfortunately there will be more instances. I have come across quite a few cases where binding nomination documentation have been left blank for years without the realisation of the relevance.
Very interesting. Forward to everyone