Super death benefits and conflicts of interest: Guilt is a useless emotion**

Previous View posts have explored arguably the highest profile decision in relation to the obligation of a legal personal representative (LPR) to avoid creating a conflict of interest is the decision in MacIntosh.

The decision in Brine v Carter [2015] SASC 205 provides another example of the key issues that need to be considered by LPRs, who are also potential beneficiaries of a superannuation death benefit.

In summary, the factual scenario was as follows:

1. The deceased appointed his de facto partner and three children from an earlier relationship as his LPR.
2. The de facto made an application for the superannuation death benefits to be paid to her directly, as opposed to the estate.
3. If the superannuation proceeds had been paid to the estate, the three children would have been entitled.
4. For a period of time prior to the death benefit being paid, the de facto partner withheld details of the superannuation death benefit from the three children.
5. Importantly however, by the time the super fund trustee exercised its discretion, the three children were aware of all relevant information concerning the death benefits and had themselves made an application for the death benefits to be paid to the estate.
6. It was held that this was a critical point, that is, the other LPRs had effectively consented to the de facto making her individual claim by themselves making a claim on behalf of the estate in full knowledge of all relevant circumstances.

While the decision of the superannuation fund to pay the entitlements to the de facto ultimately was upheld, a number of key principles were explained by the court, including:

1. Where an LPR seeks payment of a death benefit to themselves personally (i.e. not to the estate), they will be in a position of conflict, unless the will expressly permits the conduct.
2. Where there is no express provision waiving conflict, an LPR should renounce their position before taking any active steps to seek personal payment of the death benefit.
3. Alternatively, the LPR can seek the consent of all other LPRs (if any).
4. In seeking the consent of the other LPRs, there is no obligation to also receive consent from each beneficiary under the will.
5. Complications will likely arise where there is a sole LPR. In that instance, if they choose not to renounce their role, there would be an obligation to receive the informed consent of each potential beneficiary.

Ultimately, the decision is yet another reminder of the importance of a holistic approach to every estate plan.

As usual, please make contact if you would like access to any of the content mentioned in this post.

** For the trainspotters, the title today is riffed from New Order’s song of the same name, from 2005, listen here:

Let Love Rule - Specific Requirements of Binding Nominations **

Previous View posts have considered various aspects of superannuation nominations, including binding death benefit nominations (BDBN).

As with many other aspects of estate planning, whenever considering a BDBN, the starting point should always be the requirements set out under the trust deed. Indeed, a BDBN can only be used where the deed allows one to be made.

Below is an example of some of the requirements that are generally set out in trust deeds before a nomination will be held to be binding, the first three of which are generally required by legislation:

1. must be in writing;
2. must be signed, and dated, by the Member in the presence of 2 witnesses, each of whom has turned 18 and neither of whom is a person mentioned in the notice;
3. must contain a declaration signed and dated by the witnesses stating that the notice was signed by the Member in their presence;
4. will not lapse by the passing of time;
5. may be revoked by the Member by written notice to the Trustee at any time;
6. must contain sufficient details to identify the Member; and
7. must contain sufficient details to identify one or more Beneficiaries for each category of benefits selected.

While almost all trust deeds that allow BDBNs will have provisions along the lines outlined above, at times there will be additional provisions that are not necessarily expected. Some examples in this regard include:

1. a requirement that the trust deed for the superannuation fund cannot be amended in a way that impacts on any BDBN without the consent of each member who has made one;
2. a provision that empowers the trustee to accept amended BDBNs from the financial attorney of a member;
3. the trustee may be required to consider and accept a BDBN before it is valid; and
4. there may be a particular table or form that is required to be embedded into the BDBN, which sets out the percentage entitlement of each beneficiary.

** For the trainspotters, ‘Let Love Rule’ is a song by Lenny Kravitz from 1989. See here –

Can trusts last forever now? **

Following on from recent posts it is useful to understand that the majority of Australian jurisdictions decided that a life in being plus 21 years was too complicated. Instead, the rule was replaced with a statutory provision which allows up to 80 years as the maximum length of trust in Australia.

As mentioned last week, there are exceptions to this rule. In relation to discretionary trusts, the highest profile exception is in South Australia where the rule has effectively been abolished.

Another exception is in relation to superannuation funds.

Superannuation funds are simply a form of trust instrument, although a highly regulated form of trust due to the Superannuation Industry Supervision Act which imposes a whole range of specific rules.

In relation to the core of the underlying structure of a superannuation fund however, it is simply a trust structure. Importantly however there is no concept of an ending period. In other words, in theory superannuation funds can last forever.

There are obviously tax issues for self-managed superannuation funds meaning maintaining the structure indefinitely may not be a particularly smart idea. However in the context of trust vesting, superannuation funds are a clear and obvious exception to the vesting rules.

As usual, please make contact if you would like access to any of the content mentioned in this post.

** For trainspotters, ‘Forever now’ is song by legendary Australian band Cold Chisel from 1982.

View here:

A 101 tip on changing (everyday)** trustees

A regular theme in previous posts is how critical it is to ensure that the provisions of a trust instrument are followed precisely when taking steps in relation to the trust.

The SMSF related case of Moss Super Pty Ltd vs. Hayne [2008] VSC 158 is one example of this principle, in the context of a change of trusteeship.

In summary:

1. As is becoming increasingly common, there were issues around the rightful controller of the SMSF following the death of one of the members;
2. The surviving member purported to change the trusteeship of the SMSF, so that a company of which she was the sole shareholder and director would be appointed;
3. The trust deed set out the process by which a change of trusteeship could take place and specifically required the ‘founder’ to appoint any new trustee;
4. While the sole director of the new trustee company was also the founder, she did not in fact sign the change of trustee documentation in the capacity as founder;
5. In other words, while she signed as the sole director of the new trustee, there was no provision where she also signed under the founder role; and
6. Critically, the court found that, as was the case here, legal structures are created where individuals had multiple roles to play, the requirements around those roles must be respected and complied with.

In many respects, the decision reflects a number of analogous situations in the context of family trusts including the case of re Cavill that has been featured previously.

As usual, please contact me if you would like access to any of the content mentioned in this post.

** for the trainspotters, the title today is riffed from the Culture Club song ‘Changing every day’.

Listen hear (sic):

(running) and continuing confusion** with fees paid via an SMSF

One issue that arises relatively frequently is whether certain kinds of expenses can be paid by an SMSF.

Previous posts have touched on this issue.

Having recently reviewed one adviser's material on them joining a new licensee group, it was interesting to see that part of the confusion with the rules in this area, particularly for financial advisers and risk advisers, undoubtedly is because of the relatively vague standards that most licensees seem to impose.

In this particular situation, the licensee rules provided that advisers could charge an SMSF for all advice that was either product related or strategically relevant to that particular SMSF.

In turn, the rules stated that charging the SMSF for any other advice that is not so related will potentially breach the sole purpose test and was therefore prohibited.

Unfortunately, the vagueness of the rules under this type of approach can make it difficult for advisers and clients alike to make decisions in relation to areas such as binding death benefit nominations and wider estate planning documentation, and until there is clearer guidance from, for example, the Tax Office, there is likely to be continuing uncertainty.

As usual, please contact me if you would like access to any of the content mentioned in this post.

** for the trainspotters, the title today is riffed from the Radiohead song ‘Anyone can play guitar’. View hear (sic):

Hey!** It’s part III of the Ioppolo decision

Las week’s post looked at the original Ioppolo decision.

This post considers the subsequent appeal decision in Ioppolo & Hursford v Conti [2015] WASCA 45.

In broad terms, the appeal decision confirmed the original case, in particular:

1. It was confirmed that section 17A(3)(a) of the Superannuation (Industry) Supervision Act 1993 (SIS Act) does not obligate the trustee of an SMSF to appoint the legal personal representative of a member following that member’s death.
2. In other words, section 17A(3)(a) is a ‘permissive rather than mandatory' provision.
3. This meant that the surviving trustee was within their rights to appoint a corporate trustee (of which he was the sole director) and still comply with the SIS Act.
4. It was further confirmed that as the appointment took place within 6 months of the member’s death, then the fund was still complying for SIS Act purposes.
5. In also confirming that there was no lack of bona fides in the trustee’s decision, the court expressly commented that the subsequent signing by the deceased of a binding nomination (in favour of her husband) meant that it was reasonable to assume that the earlier made comments in her will (requesting that the death benefit pass to her children) had been superseded.

As usual, please contact me if you would like access to any of the content mentioned in this post.

** for the trainspotters, the title today is riffed from the Pixies song ‘Hey’.

View hear (sic):

(Nothing) challenging** a trustee's decision

Previous posts have considered the key aspects of the Ioppolo decision.

One aspect of the decision, which is potentially very relevant for advisers and clients alike, relates to the plaintiff's argument that the trustee (being effectively the surviving husband) had not exercised his discretion in paying the entirety of his deceased wife's death benefit to himself in a 'bona fide' (or in good faith) manner, and therefore, should have been forced to repay the benefit to the fund.

In addressing this issue, the court specifically commented as follows:

1. The husband had sought specialist advice in relation to his rights and obligations as the trustee;
2. The husband deliberately waived his right to confidentiality (or privilege) in relation to this advice;
3. The court on reviewing the advice agreed with the conclusion given, that being that the husband was able to make the payment to himself;
4. Where a trustee is acting on advice of a specialist, it will be generally very difficult to successfully argue that the trustee lacked good faith in making a decision;
5. Even whereas here, there was a provision of the deceased’s will that contradicted the decision ultimately made by the husband, this of itself did not automatically mean that the husband was acting without good faith, particularly when there was no other evidence to support the allegation; and
6. Ultimately, a court will only review the way in which the discretion of a trustee is exercised in very limited circumstances.

Next week’s post will provide commentary on the outcome of an appeal of the original decision.

As usual, please contact me if you would like access to any of the content mentioned in this post.

** for the trainspotters, the title today is riffed from the James song ‘Ring the bells’.

View hear (sic):

The Original (Sin)** and super death benefits - the Katz decision

Superannuation entitlements are regularly one of the most significant assets in any estate planning exercise.

Critically however, superannuation benefits need to be regulated in a way that complements a wider estate planning exercise. Arguably, one of the leading cases in relation to superannuation death benefit planning remains, after more than 15 years, the decision in Katz v Grossman [2005] NSWSC 934.

The case involved Katz bringing an action against his sister Grossman (and her husband), claiming an interest in their father’s self managed superannuation fund (SMSF).

A summary of the facts is as follows:

1. originally, the father and mother were the individual trustees of the SMSF;
2. the mother died some years before the father, and subsequently Grossman was appointed as a co-trustee with the father (this was to ensure that the SMSF continued to comply with the relevant superannuation legislation);
3. when the father later died, Grossman appointed her husband as a co-trustee with her;
4. during his lifetime the father had made a non-binding nomination indicating that he wanted his superannuation entitlements divided equally between Katz and Grossman; and
5. Grossman and her husband ignored the nomination and paid the entirety of the superannuation entitlements for the benefit to herself.

The Court held that all the trustees of the SMSF had been validly appointed at the relevant times, and that as a result, the challenge by Katz was unsuccessful and Grossman was entitled to keep the superannuation entitlements.

As usual, please contact me if you would like access to any of the content mentioned in this post.

** for the trainspotters, the title today is riffed from the INXS song ‘Original Sin’. View hear (sic):

Mine, all mine** - Trustees and SMSF borrowing arrangements

Over the last couple of weeks, the posts have focused on the various issues that arise in relation to having the one company act as trustee for multiple trusts.

One area of the law where the ability to have the same company act as trustee for multiple trust relationships is prohibited is in relation to the limited recourse borrowing arrangements that self-managed superannuation funds can enter into.

Briefly, we confirmed to an adviser recently that in relation to these types of borrowing arrangements:

(a) the need to have a separate bare trust is driven by the requirement under section 67A of the Superannuation (Supervision) Industry Act that the borrowing arrangement relates to a ‘single acquirable asset’, meaning a separate trust must be established for each acquisition; and

(b) the bare trust needs to have a different trustee to the super fund because under trust law, if the sole trustee is also the sole beneficiary, the trust ‘merges’ and ceases to exist.

** for the trainspotters, the title here is riffed from the Portishead song ‘All Mine’.

EPAs and SMSFs – Bit like Generals and Majors**

Following recent posts about attorney appointments it is important to also remember the special rules that apply in relation to self-managed superannuation funds (SMSF).

As is well understood, a superannuation fund is an SMSF where all members of the fund are trustees or directors of a corporate trustee – see sections 17A(1) and (2) of the Superannuation Industry (Supervision) Act 1993.

A super fund is also a complying SMSF where an EPA of a member is a trustee or a director for a corporate trustee in place of a member during any period that attorney has an enduring power of attorney (EPA) in respect of a member of the fund who themselves is unable to act (see section 17A(3)(b)(ii)).

In order for section 17A(3) to apply the person seeking to become a trustee or director needs to be appointed under an EPA of the member who cannot act. A general power of attorney will not be sufficient.

Practically, the only way in which an attorney under an EPA can act in the role as trustee for an SMSF is for the existing member to be removed from their role as trustee (or director of the corporate trustee as the case may be), and for the attorney under that member’s EPA to be appointed as the new trustee or director in place of the member.

In addition to satisfying the statutory provisions, the trust deed for the SMSF must also be complied with.

Importantly, the attorney for the member performs their duties as a trustee of the SMSF, or a director of the corporate trustee of the SMSF, pursuant to their appointment to that position, rather than as an attorney or agent for the member.

The Tax Office has detailed their views in this area in Self-Managed Superannuation Funds Ruling SMSFR 2010/2. As usual, if you would like a copy of this ruling please let me know.

** for the trainspotters, the title here is riffed from the XTC song ‘Generals and Majors’.

What does 'sufficiently influenced' mean?

Particularly in relation to investments by self-managed superannuation fund (SMSFs) into geared unit trusts that might potentially be a 'related party', the concept of whether a director is 'sufficiently influenced' by other persons is always important.

Generally, a director will be considered to be sufficiently influenced by a third party where they act in accordance with that other party’s directions or wishes.

While the concept is relatively easy to define, its application in any specific factual scenario will almost always depend on an interpretation of the circumstances.

Some examples of where a director has been held to be sufficiently influenced by another person include:

1. A husband and wife (who were the only directors of a company) have been held to be influenced by their sons, because they never made any substantive decision without consultation with the sons and their intention was to ultimately appoint the sons as directors.
2. A company has been held to be controlled solely by one director, even where there was an independent third party as a co-director, because the third party had no input into the management of the company and had simply been appointed to create the impression that the board was independent.
3. A sole director company, where the director was an independent appointment, was held to be controlled by the ultimate shareholders of the company, as the director simply acted in accordance with the directions of the shareholders.

Ultimately, the Tax Office has confirmed that it is necessary to take into account all of the evidence and conduct between parties and the concept of a party 'significantly influencing' a third party will exist where it can be said to be likely that the other party would act in accordance with the wishes expressed.

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