SMSF Succession Planning – Who Is In Control of Your Fund?
The recent court decision in Wooster v Morris  VSC has highlighted the key messages and items of importance when it comes to SMSF Succession and Estate Planning.
Some background on the case:
Mr Morris (the deceased) had two adult daughters from a previous marriage (Wooster and Smoel – the plaintiffs). He also had a second wife, Mrs Morris.
In March 2008 Mr Morris made a binding death benefit nomination (BDBN) in favour of his adult daughters for all of his interest in the SMSF. Mr Morris died in February 2010 with an SMSF interest of $924,509. His adult children were the executors of his will and estate.
However, after his death Mrs Morris was the only surviving trustee of the SMSF and appointed her adult son as her co-trustee. They later changed to a corporate trustee, Upper Swan Nominees Pty Ltd with Mrs Morris being the sole director and shareholder.
For some reason, the trustee of the fund (i.e. Mrs Morris) decided that the BDBN was not binding and decided to pay all of the deceased’s death benefits to herself. Of course the adult daughters sought advice and took the matter to court. They agreed to take the ‘’binding’’ nature of the BDBN to a special referee who found in favour of the plaintiffs that they were entitled to be paid the death benefit, being $924,509 plus interest. However the SMSF’s trustee legal fees were substantial and had been paid out of the deceased death benefit interest, depleting the death benefit by some $345,000. The trustee therefore argued that the plaintiffs should only be paid out of the remaining deceased’s interest in the SMSF. The court declared that all moneys held by the SMSF (including Mrs Morris’ member accounts) were available to meet the payments and that the trustee and Mrs Morris personally were jointly and severally liable to pay all outstanding money.
1/ LPR does not automatically become a trustee
The case clearly dispels the myth that a person’s executors (Legal Personal Representatives) automatically become a trustee when a person dies. It is the SMSF deed that determines the trustee upon death.
N.B. SMSF deeds used by The Money Edge contain rules that require the LPR to be appointed as replacement trustee.
2/ BDBN’s are a partial solution only
SMSF Succession planning cannot be handled only by a BDBN. In this case, a valid BDBN was made but the plaintiffs still spent over three years in legal battles to obtain their money.
3/ The Most Important Consideration is who is in Control
It is important to think out and put in place necessary documents to ensure that the right person is going to control the fund and see out your wishes. As discussed above, the SMSF Deed is largely relied upon for these matters as it sets out the rules of the fund.
There are many deeds on the market with some costing as little as $80 online. As with everything, you generally get what you pay for, so with any deed it’s important to read it carefully and ensure that the rules contained in it meet your specific requirements. If your current deed doesn’t you should consider updating your deed to one that does.
The Money Edge | Bundaberg