A little-known court case has “absolutely critical” implications for SMSF succession planning and illustrates common deficiencies in SMSF documentation that are “ticking time bombs”, according to DBA Lawyers.
Speaking to SMSF Adviser, DBA Lawyers' director Bryce Figot explained that the case, which went to the Supreme Court of South Australia, involved Morris Hassan, who was married to his second wife Margaret Hassan. Mr Hassan had children from his previous marriage.
An SMSF was commenced and although not expressly stated, it appears Mr and Mrs Hassan were the only members and trustees of the SMSF, DBA Lawyers stated.
Before Mr Hassan died, he made a document which stated he wanted his superannuation to be split between his children and his second spouse. The document contained binding language and had two independent witnesses, Mr Figot said.
After he died, the question of how Mr Hassan’s “significant” death benefits would be dealt with was raised, and whether the document Mr Hassan made forced Mrs Hassan to only pay a third of Mr Hassan’s benefits to herself, and the remainder to Mr Hassan’s children.
Mrs Hassan stated she sought legal advice, Mr Figot said. She said the legal advice stated that the document, a confidential memorandum, is not a binding nomination form within the meaning of the current trust deed.
Rather than trying to determine whether or not the confidential memorandum was binding, Mrs Hassan applied to the Supreme Court.
While the outcome of the court’s findings have not been made public, Mr Figot said the facts of the case highlight important considerations for SMSF trustees.
“The deceased went to the trouble to express his wishes in writing, with quite binding language, and even had two independent witnesses,” Mr Figot said.
“I think if you say to 99.9 per cent of people, if you do that, should that be sufficient to bind what is going to happen to your super when you die? The overwhelming majority of people would say yes.
“Unfortunately, the trust deed was written like the majority of trust deeds - not very strategically.”
Mr Figot emphasised the importance of a strategically written deed in light of this case, and also stressed the importance of selecting the right person to control the super fund in the event of death or loss of capacity.
“It’s far more important to work out the right person who is going to be holding the purse strings upon loss of capacity and death,” Mr Figot said.
“Because if the right people are [involved] they’ll make the paperwork work. And if you’ve got the wrong people, you can have binding death benefit nomination, but it will take literally years and years of fighting to possibly start seeing some money.”
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