Death Benefit Nominations – Ioppolo v Conti [2015] WASCA 45

1 September, 2015

Superannuation is not an estate asset. It is a trust and like all trusts, the trust property is not dealt with in your Will.

Superannuation is instead dealt with by making a death benefit nomination within the rules of superannuation fund. Depending on the type of nomination you make, the trustee of your superannuation may be bound to direct your superannuation to your estate, or not. In the absence of a properly drafted and binding death benefit nomination, who receives the death benefits is at the sole discretion of the trustee(s).

An example of the sort of confusion that can arise between a superannuation fund and a will was shown in the case of Ioppolo -v- Conti [2015] WASCA 45 (10 March 2015)

Ioppolo v Conti

Francesca and Augusto Conti, established a self managed super fund (SMSF) in which they were the only trustees of the fund and the only members of the fund. Francesca had 4 daughters from a previous relationship. In 2010, Francesca died. At the time of her death, Francesca did not have a valid binding death benefit nomination, although she had left a death benefit nomination in favour of Augusto which had lapsed. Francesca provided in her will that her death benefit entitlements in the SMSF were to be paid to her 4 children rather than her surviving husband (Augusto).
After Francesca’s death Augusto installed a corporate trustee, in which he was the sole director and shareholder. The corporate trustee (which Augusto controlled) paid Francesca’s death benefit to Augusto. The ensuing Court case and appeal centred on the proposition that an executor of a deceased person’s estate must be automatically installed as a trustee of their superannuation, under the terms of section 17A of the Superannuation Industry (Supervision) Act 1993 (‘SIS Act’).
In 2013, the Supreme Court of Western Australia found that as the surviving trustee, Augusto, was not required to appoint an executor of the deceased member’s estate as a trustee of the fund under s 17A(3) of the SIS Act. The 2015 decision by the Court of Appeal dismissed the appeal on similar grounds.

What’s interesting about this case?

Section 17A of the SIS Act

The formulation of subsection 17A(3) of the SIS Act does not require that an executor of a deceased person’s estate, or legal personal representative, be appointed as trustee of the deceased person’s superannuation.

Section 17A is a ‘vanilla’ provision, which, at its heart, does nothing more than identify the conditions for a fund to be a SMSF for the purposes of the SIS Act. If a fund meets these conditions it is entitled to relevant tax concessions. With this in mind, section 17A has been developed to cater for funds which have only one member, and funds which have more than one but fewer than five members. Importantly, subsection 17A(3) does allow for the appointment of an executor as a trustee, yet does not require it.

The Court analysed the operation of section 17A and found that the Conti’s super fund remained a SMSF because it migrated from the type of fund covered in subsection 17A(1) (multi-member fund) to a single-member fund covered by subsection 17A(2) following the appointment of a corporate trustee. No appointment of the legal personal representative was required.
In its analysis, the Court found that subsection 17A(4) allows a fund 6 months to organise its affairs so that it can remain an SMSF. In the case of a fund which has two members and which would qualify as a SMSF on the death of one of the members, the Court said it remains an SMSF for six months. If the remaining member has not taken some steps during that period of grace to bring the fund within the terms of subsection 17A(2) then it would cease to be a SMSF.

The Court concluded by stating that there are no words within subsection 17A(3) or the Act as a whole, which would intend that a fund must use the ‘tools’ for compliance in 17A(3) within a given time, or at all, given that there are other means by which the fund can be brought into compliance.

Binding Death Benefit Nominations and Wills

In his judgment, Master Sanderson noted that it was common ground between the parties that the trustees of the fund are not bound to take into account the desires of a deceased member expressed in a will as to the distribution of that member’s death benefits. One can deduce that if Francesca truly wished for her death benefits to go to her daughters a valid binding death benefit nomination should have been made and kept up to date.

Impact

Section 17A(3) of the SIS Act does not mandate that an executor of a deceased person’s estate must be appointed as a trustee of that person’s superannuation. It is nothing more than a tool that can be used to help ensure that a SMSF remains compliant. Having an advisor that understands how to use this tool is imperative.
Lessons that you can take from the findings in this case include the following:

  • The will itself has relatively little ‘sway’ over how a deceased person’s superannuation benefits are paid. When discussing your will with your lawyer make sure to discuss with them how your superannuation is dealt with outside of the will context.
  • Trustees and members of SMSFs should know what effect the trust deed has on any current death benefit nominations – that is, is the member able to make a nomination and will it lapse after a certain period of time?
  • Make sure that you have an advisor that understands the superannuation law as it relates to SMSFs and death benefits. For instance, by acting within 6 months to convert the SMSF into a single member fund, a surviving trustee can restrict the executor of an estate from becoming a trustee and having a say in where the death benefits are paid.

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