DEATH BENEFIT NOMINATIONS – CLAIMING AGAINST SUPERANNUATION – It’s not as clear cut as it seems!

The trust deed establishing a superannuation fund usually provides for money to be paid by the fund on the death of a member.  The benefit does not however, technically form part of the estate of the deceased although it can often be paid to the estate or personal legal representative.   Commonly, trust deeds allow a member to nominate a person or persons to receive the death benefit directly, provided the person or persons meet the statutory requirement of a dependent.

The two forms of nomination are; Non-Binding, and Binding Death Benefit nominations.

Many members are now able to make Non-Binding Nominations of beneficiaries through the internet portal of his or her superannuation trust fund.   This type of nomination is not binding on the fund, and the trustee can effectively ignore the member’s nomination and pay the death benefit to any dependent of the deceased, or the deceased’s personal legal representative.

It is often important that the member have some certainty of payment to the nominated beneficiary.  This is often the case if the payment of death benefits from the fund to the beneficiaries forms part of a broader estate plan and strategy, or if specific beneficiaries are to be excluded from the death benefit payments.   In the case of retail and/or industry superannuation funds, the binding nomination needs to be renewed every three years or it will effectively lapse.

Binding nominations are essential to estate planning but largely depend on the rules of the specific superannuation fund.  It is important to ensure that the binding death benefit nomination form accords with the rules of the specific trust fund, and has been properly signed, dated and witnessed. Otherwise, it will likely be invalid and fail.

If you require advice in planning your estate or have a potential claim, you should contact your solicitor.   Koffels have a history of acting for clients and dependents, (often a child or children from a former relationship or marriage who have not been left with adequate provision), and of successfully claiming against superannuation trust funds.  This also provides us with an appreciation and extensive knowledge of the pitfalls of poor estate planning.

Pitfalls in Superannuation and Estate Planning – Your Super payout may not go to your intended beneficiary

A number of recent decisions have highlighted the dangers of superannuation trust fund and death benefits not being paid out in accordance with the deceased’s wishes or intentions, and potentially leaving family members without benefits or support.

This is particularly the case with Self-Managed Super Fund (“SMSF”) arrangements where particular attention has not been paid to the Trust Deed provisions or misunderstandings the nature of the Trust Deed and the roll of binding nominations, pensions and revisionary pensions.

As with any estate planning there are a varying range of possibilities that might exist at the time of death. Depending on the age of the member of the trust fund these can either be reasonably flexible or discretionary on one hand, or reasonably restricted, on the other.

The Trust Deed provisions and arrangements such as nominations must tie in with general estate planning. Some of the issues that can arise are:

Payment of death benefits to an insolvent estate. (Your debts could eat up all of your super funds and leave nothing for your intended beneficiaries!)
Challenges to the estate and potentially the superannuation fund, particularly in NSW pursuant to part 3.3 of the Succession Act 2006.
The role and validity of binding death benefit nominations.
Replacement of the trustees of SMSF’s and/or directors of companies as trustees on death.
The priority of a reversionary pension and/or Binding Death Benefit Nomination (“BDBN”).

Not all industry and retail funds allow BDBM’s. This can be viewed as a potentially difficult issue as death benefits may be paid to an insolvent state, potentially incur adverse tax consequences and otherwise limit the members freedom to choose who should receive the death benefits amongst their dependants.

It should be noted that a step child can be defined as a dependent and may be eligible for a payment of death benefits by way of the trustee’s discretion. This may or may not be desirable depending on the member’s circumstances.

While 16.17A of the Superannuation Industry (Supervision) Regulations allow BDBNs, this is in effect an option and many retail and industry trust deeds restrict the use of these nominations. In addition the process and forms specified by the Trust Deed if DBDNs are allowed, must be followed or the nomination will likely be invalid.

In the matter of Wooster v Morris [2003] VSC 594 there was a contest over the payment of death benefits from Mr Morris’ SMSF worth approximately $925,000. Mrs Morris was left managing the trust and elected to pay Mr Morris’ death benefits to herself rather than his two daughters from a previous marriage. While the daughters were ultimately successful in recouping the benefits, legal fees of approximately $300,000 were incurred. The reality is that the person holding the ‘purse strings’ is left with authority and often has a discretion to make decisions affecting the payment of death benefits.

A similar issue arose in the matter of Ioppolo v Conti [2015] WASCA 45. In this matter Mr Conti was also left as the sole trustee of the SMSF. In that capacity he elected to take the full benefits from the trust fund in the form of a pension. While Mrs Conti had made a Will naming two of her children as executors and bequeathing her interests in the SMSF to her four children, these wishes were not carried out. The children received no benefit from the SMSF. The court found that there was no specific requirement that upon the death of a trustee, that their legal personal representative be appointed as a replacement trustee for the deceased. Had the trust deed specified that a replacement trustee be appointed before any decision as to a distribution could be made, the SMSF could have been more equitably distributed.

Proper estate planning requires a careful overview of the trust fund whether it be a retail and/or an industry fund or an SMSF. Many precedent trust funds for SMSF’s do not adequately deal with many of the situations that can arise including contest between children and spouses, often of second marriages, and as to who receives the superannuation funds.

In NSW specific legislative provisions exist to make a claim for provision from an estate, and this can include superannuation funds. Even so, this can be an expensive process and does not necessarily result in an outcome that the deceased or member of the superfund would have wished or intended.

Issues as to the trustees’ discretion, the terms of the trust deed, and the nature of death benefit nominations, need to be carefully considered if the intended dependants are to receive a share of your estate. Ideally this should be considered before entering into a SMSF or, in the case of retail or industry funds, the choice of fund needs to be considered. It is all too easy for your dependants to be shut out of your estate and left without the provisions you had intended for them. Particular consideration is required in relation to second marriages, children to second marriages and step children, given the complications that can arise with regard to existing and potentially inadequate estate planning provisions.

You may think you have it right; to be sure have your affairs for Estate Planning reviewed by an experienced solicitor. The investment you make today, can save enormous expense and heartache to your beneficiaries in the future.

INSOLVENCY: CROSS-BORDER CLAIMS – FOREIGN DEBTS AND INSOLVENCY- WHAT IS THE STATUS OF YOUR CLAIM?

The Cross-Border Insolvency legislation permits a foreign representative to commence an insolvency proceeding in Australia where the debtor is subject to a foreign proceeding. Difficulties surrounding cross-border insolvencies can result in risk and cost to businesses involved in international trade in goods and services. The legislation assists in the integration of national financial systems with the international financial system and assist to:

provides access to Australian courts to a person administering a foreign insolvency proceeding
allow foreign creditors the same rights as Australian creditors
provide a legislative framework between courts and insolvency practitioners of different jurisdictions

The primary principles of the legislation are:

the Federal Court of Australia will have jurisdiction in proceedings relating to individual debtors, and the federal court and state supreme courts will have jurisdiction where the entity involved is not an individual.
a foreign representative of a foreign proceeding is obliged to identify and report on all foreign proceedings in respect of the debtor.

Foreign representatives and foreign creditors can apply to Australian courts. They are not taken to have submitted to an Australian court’s jurisdiction excepting the relevant application. Foreign creditors in effect have the same rights as Australian creditors.

The legislation provides that any application for recognition of a foreign proceeding must be accompanied by a statement identifying all foreign and Australian proceedings in respect of the debtor that are known to the foreign representative. There is an ongoing duty of disclosure.

If a proceeding is a foreign “main proceeding” the insolvency allows for a stay of the same scope and effect against the debtor as if the stay or suspension arose under the relevant Australian local legislation. If the Cross-Border Insolvency Act is inconsistent with the Bankruptcy Act, the provisions of the UNCITRAL (United Nations Commission on International Trade Law) legal framework or the Cross-Border Insolvency Act 2008 (Cth) will prevail.

When a foreign proceeding is recognized an Australian proceeding can still have limited extra territorial cross-border reach where necessary to other assets that should be administered in the Australian proceeding. For example, where a meaningful administration locally may have to include assets abroad, particularly when there is no foreign proceeding necessary or available in the state where the other assets are located.

The Australian courts are to cooperate to the maximum extent possible with foreign courts or foreign representatives and is permitted to communicate directly with them. Likewise, the trustee in bankruptcy or a registered liquidator shall, in exercising their functions, cooperate with The Australian courts. A voluntary administrator is also subject to the provisions.

The primary local legislation continues to be the Bankruptcy Act and Chapter 5 of the Corporations Act.

Koffels deal with cross-border transactions, tax, claims and litigation with a global network of experts to assist. We specialise in insolvency matters and have a proven track record the field. Our in-house consultant Justice Ralph Zulman SC (retired) of the Supreme Court of South Africa was an author of The United Nations Commission on International Trade Law – UNCITRAL

Duties of Trustees – Liabilities and Risks: Don’t Leave Yourself Exposed

The duties of trustees are many and varied and require due care and skill. To a large degree, these duties determine the liabilities of trustees and the possible personal exposure of trustees to legal costs. Trustees can usually expect to be indemnified for any legal costs but not if a duty of care is breached. The duty is of course to the beneficiaries, often referred to as the cestuis que trust in legal parlance. Express trusts are generally formed pursuant to a will, taking effect on the death of the testator, or a deed of trust, usually taking affect during the life of the settlor.

The first matter trustees should be attending to is to acquaint themselves with the terms of the trust instrument. This has be expressed such that the trustees know “precisely the nature and circumstances of the trust property, and that they should know exactly what they are required to do with that property” (Jacobs Law of Trusts at 1701). The terms of the trust must be adhered to and carried out. Legal advice should be sought if there is any doubt or ambiguity as to the provisions of the trust or the provisions are incapable of being carried out for any reason.

Without going into detail, a trustee has duties of impartiality, to invest funds, keep proper accounts and to exercise reasonable care. The trustee should exercise the same diligence and prudence as an ordinary prudent person of business would exercise in conducting that business as if it were his or her own (Jacobs Law of Trusts at 1714 and see Austin v Austin (1906) 3 CLR 516). This is an objective test meaning that it is tested against the standard expected of an ordinary person, not against the standard or skills of the trustee themselves. The word prudence imports a standard that the trustee must not take undue risks, according to the purposes of the trust. For example, a trustee may well take risks with his or her own property that would not be prudent to take in regard to another’s property. In the event of a breach the trustee can be held personally liable for his or her decisions and actions.

The duties of the trustee, and therefore the personal liability of the trustee, cannot be delegated to another. This applies in respect of a co-trustee in that a trustee cannot delegate to another named trustee. A trust may allow such delegation, but in general a trustee can be held personally liable for the decisions and actions of another person or trustee. The trustee may of course have a right to seek indemnity from that person, but that may involve liability for legal costs and depend on enforcing any such liability through the Courts. This common law position is ameliorated by s59 of the Trustee Act 1925 (NSW).

The Trustee Act 1925 (NSW), and similar acts in each state provide remedies and impose duties for many situations that might befall trustees. It is not the purpose of this summary to list these provisions, although a relevant section has been referred to above. Broadly speaking, the Act covers such issues as new and additional trustees, powers and duties, improvements and repairs to property, seeking the advice of Court and relief from breaches of trust duties.

A trustee can, and should seek professional advice if there is any doubt as to the terms of the trust or any actions or decisions to be made in respect of the trust. In the normal course, the trustee is entitled to be indemnified for the costs of any such advice sought. If the issues raise a potential liability for the trustee, or it is unclear as to the course that should be taken, for example in respect of a dispute between the beneficiaries and, on the other hand, beneficiaries and trustees, then the advice of the Court (s 63 of the Trustee Act) should be sought and this will provide protection for the trustees from claims or actions by beneficiaries.

This advice is a general summary only and legal advice should be sought in respect of any specific issues arising in this context.

CAN YOU MAKE A WILL ON VIDEO? FORMALITIES – MAKING A WILL IN AUSTRALIA

Basically, a Will is not valid unless it is in writing, signed by the Testator in the presence of at least two witnesses present at the same time, and who attest and sign the Will in the presence of the Testator. Other problems or issues may invalidate a Will, but this is fundamental to a good starting point.

A Will does not necessarily have to be a single document, and can be, or include a number of testamentary documents. The Will of a deceased could be made up of a collection of documents to be admitted to probate.

There may or may not be good reasons to have a number of document in dealing with property. The most usual would be a codicil as an amendment to a previously drafted Will, although the two documents together would then technically constitute one will. Careful consideration needs to be given to any scheme whereby a number of documents are to be used as, or to constitute a Will.

Of course a valid Will does not necessarily mean it will guarantee that your property will be dealt with as you intended. The reasons for this are many and varied.

In what circumstances could the Court dispense with the requirements for execution, alteration or revocation of Wills?

Importantly, the Court must be satisfied that the person intended submitted documentation to form his or her Will. In making a decision the Court may, in addition to the submitted document, have regard to any evidence relating to the manner in which the document was executed, and any evidence of the testamentary intentions of the deceased person, including evidence of statements made by the deceased person.

Must it however, be a document as such? The word document in this section includes anything from which sounds, images or writings can be reproduced with, or without the aid of anything else. This is due to the definition which adopts the definition of document in the Interpretation Act 1987 for the purposes of this section.

As stated, a Will must be in writing, but what about a Video Will? Perhaps a DVD, or an electronically stored Will in a camera memory would be the more modern equivalent. This brings us to the issue of Informal Wills. (Informal Wills are dealt with in section 8 of the Succession Act 2006.)

A video or electronic Will is not indeed valid, but it may be admitted to probate provided a Court is satisfied it incorporates the testamentary intentions of the deceased. It is of course much more complicated given various evidentiary rules, and could initiate a Court case which could be expensive and uncertain.

The upshot of this is; do not to make an electronic Will or shoot one on your phone camera. It could well prove to be ineffective, keep the distribution of your estate held up for years, and would undoubtedly be expensive.

Your Will is an important document (or set of documents) that should not be left to chance. See your solicitor for a formal Will then, if you must, make a video for your family for posterity..

(The formal requirements for a Will are contained in section 6 of the Succession Act 2006.)

WHO GETS YOUR ESTATE? – PERHAPS NOT WHO YOU THINK, DON’T LEAVE IT TO CHANCE

The primary issue in estate planning is ensuring that your wishes are carried out on your death. It is your property and you should be free to choose to whom it will be transferred on your death, right? Simply put you make a valid will specifying your wishes and appoint a person to carry this out. The reality is of course more complex.

Firstly, you must have a validly attested will, and the requisite mental capacity to execute it at the time of signature. While the law provides for the recognition of: informal wills; the rectification of erroneous provisions; and statutory wills for persons that lack capacity; these procedures involve a hearing which can be contested and costly.

A change of circumstances such as a marriage or divorce can invalidate some or all of the provisions of a will. Beneficiaries can seek to set aside trust provisions or conditions that you may seek to have applied to gifts. A common example would be the vesting of property upon the attainment of a specified age.

Property that will not necessarily form part of your estate includes: superannuation and related death benefits; life insurance; trust property; and jointly held property. It is not uncommon for parties, and even their legal advisors, to overlook or fail to check the legal status of property and financial resources. The trustee of the superannuation fund may not be bound by your nomination and a binding death benefit nomination may need to be considered.

A claim, pursuant to Chapter 3 of the Succession Act 2006, can be made against your estate. The relevant considerations are numerous and require consideration of many of the abovementioned factors including superannuation. Many claims arise in relation to second marriages and de facto relationships and can for example be made by existing or former partners and/or children to either partner.

These issues all need to be considered in so far as they are relevant when plans are put into place for the orderly succession of property.

by Michael Lee