A real-life estate planning lesson

All too often people think they have the correct structures in place to carry out their wishes, but sometimes their planning fails dismally.

Planning is the key.

A testator, having accumulated significant assets over a lifetime, would like to ensure that they are left to his or her chosen recipients.

When considering estate planning, it is critical that a person consider how their superannuation benefits will be dealt with when they die.

The importance of this was recently highlighted by the NSW case of Katz V Grossman, where a SMSF member died, leaving two adult children – a daughter who was a trustee of the SMSF and a son.

The testator bequeathed approximately $1 million in superannuation benefits and stated in his will that it be split between his two children equally.

On his death, the daughter in her capacity as trustee, ignored the will and paid all the proceeds to herself.

Despite the intention of the testator, the court held in her favour and decided that she was entitled to do so under the SMSF’s trust deed, thus declaring the will ineffective.

Thus the Trust Deed took precedent over the will.

A way to avoid this kind of situation would have been to use a binding death benefit nomination, which effectively would take the discretion away from the trustees.

In this situation, when a SMSF member dies, their superannuation benefits will be distributed according to the Binding Death Benefit Nomination and if none exists, then the trustees have the say.

This case certainly highlights that the utmost care has to be exercised when constructing an estate plan because the outcome can not only be unfair but also not what the testator intended.

Martin Morris, March 2014

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