Lawyer warns of rising death benefit disputes
A growing awareness of estate litigation, along with the special nature of superannuation benefits, will see further increases in disputes involving estate planning for super, one industry lawyer cautions.
Speaking to SMSF Adviser, Cooper Grace Ward partner Scott Hay-Bartlem said the SMSF industry is certainly seeing an increase in disputes about how SMSF death benefits fit in, how they are paid and how the decision making is passed.
“We’re also seeing more disputes about how super is dealt with once people have lost capacity,” he said.
“More people have more super and there’s a trend towards estate litigation increasing generally as well, so tie that in with the special nature of super death benefits and it’s certainly on the increase.”
Mr Hay-Bartlem said there is a growing awareness of super benefits among potential beneficiaries since there now exists a generation that has been accustomed to receiving super guarantee contributions.
SMSF practitioners and trustees should therefore be asking more questions, he said.
The key issues, according to Mr Hay-Bartlem, concern who makes the decisions and therefore who decides how the super is distributed.
“There are obviously pressure points in blended families where you’ve got family from a prior marriage and a spouse from a later marriage, but I’ve also seen quite a number of disputes within original marriages where widowers say, ‘I can’t believe my children are doing this to me’,” he said.
“Typically, you see it where there’s been no real thought put into it, and it’s not really clear who’s going to be controlling what or what the person actually wanted.”
One important aspect of a death benefit strategy is considering who will control the fund and making sure the process of passing control has been thought through.
“For example, if my spouse is a co-director and shareholder of a trustee company of a super fund, merely giving my half of the shares to my son doesn’t allow him to be a co-controller, or stop my spouse from making a death benefit payment immediately after I stop breathing, so you need to think about who’s going to gain control and practically how you’re going to [pass] control over,” Mr Hay-Bartlem said.
“SMSF practitioners and trustees also need to consider if the binding nominations actually comply with the trust deed, and that you can actually pay under [these nominations] so making sure they actually work within the realms of the law and ensuring you’ve had that discussion and everything aligns up.”
Mr Hay-Bartlem said he has seen many cases where SMSF trustees believe they have binding death benefit nominations only to find out that once the deed is analysed, they are not binding at all.
Miranda Brownlee is the deputy editor of SMSF Adviser, which is the leading source of news, strategy and educational content for professionals working in the SMSF sector.
Since joining the team in 2014, Miranda has been responsible for breaking some of the biggest superannuation stories in Australia, and has reported extensively on technical strategy and legislative updates. Miranda has also directed SMSF Adviser's print publication for several years.
Miranda also has broad business and financial services reporting experience, having written for titles including Investor Daily, ifa and Accountants Daily.