Practitioners cautioned on traps with testamentary trusts
Inconsistent estate planning is resulting in a raft of issues, particularly where clients establish testamentary trusts and binding death benefits nominations separately, an industry lawyer warns.
Cooper Grace Ward Lawyers partner Scott Hay-Bartlem said he is seeing a lack of consistency between different estate planning documents, especially where superannuation involved, which could lead to a greater number of disputes further down the line.
“We’ve seen wills that are inconsistent with the documents that were done for the SMSF and inconsistent documents trying to deal with the SMSF balance and the reversionary pension, which is different from the binding death benefit nomination,” said Mr Hay-Bartlem.
One area in particular where this is causing problems he said is where clients have set up testamentary trusts in wills to protect children and have then later set up a binding death nomination of their superannuation to their children directly.
“[The clients] haven’t realised this actually takes the super outside the estate and outside of the testamentary trust,” said Mr Hay-Bartlem.
“I’ve had a string of clients do planning in 2006 with testamentary trusts, who have since, with their advisers, done binding death nominations to their kids directly without coming back with the question ‘does this work?”
Once it’s been explained to the client, Mr Hay-Bartlem said the client then realises it’s not what they actually want from their estate planning.
Cases such as Ippolo v Conti are he said a good example of the implications of inconsistent estate planning.
“When Mrs Conti died there was a will that said not to give anything to her husband Mr Conti, and there were three lapsed binding death nominations all forcing the super to Mr Conti. We’re seeing more of that where things just don’t match,” he said.
Mr Bartlem said he is seeing an increasing number of estate planning documents that need tidying up where they weren’t done properly or weren’t done at all.
Ensuring estate planning is done correctly he said is becoming increasingly important as people become more aware about the options with superannuation and are “using it as another form of estate dispute”.
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.