Where will your super go on your death?

A recent case emphasises the importance of getting your estate planning right. We explain what SMSF members can learn from the case of Ms Conti.

Key Points

  • If you have super, a will alone is not enough
  • A binding death benefit nomination is a must if you want legal protection
  • We highlight the benefits and pitfalls of different approaches  

Estate planning is a tough exercise. It can be complicated, boring and emotional – in any combination. It’s why many of us put it off to deal with at a later date – which never arrives – while others put measures in place but fail to stay on top of them. As a result, intentions are never implemented or (possibly worse) the measures implemented fall out of line with the intentions of those who put them in place.

In a recent case, Ioppolo & Hesford v Conti [2013], Ms Conti’s super account ended up going to the one person she specifically didn’t want it to end up with. We’ll look at the case and the lessons for SMSF members. But the most important lesson is that it is something you can’t ignore. As we head towards the summer holidays, it might be worthwhile setting aside a few hours to make sure your affairs are in order.


Let’s start by looking at the key elements of superannuation death benefits and estate planning:

  1. Will. Most of us will be familiar with the ‘will’. It’s the document you use to tell your executor (the person who settles and distributes your estate upon your death) where you want your assets to go. The critical point is that your will won’t cover your superannuation – the trustee of the super fund decides who your super death benefit goes to. In the context of SMSFs (where the trustee is typically a family member or a friend) this can have serious implications.

  2. Binding death benefit nominations. If you don’t want the remaining trustee (or trustees) making their own decision on who gets your super money, you need to make a binding death benefit nomination (DBN). This allows you to tell the trustee where you want your death benefit to be paid. Generally, binding DBNs lapse after three years although, in the case of SMSFs, there’s a draft Tax Office ruling (SMSFD 2008/D1) which indicates that they can be made non-lapsing (if the SMSF’s trust deed allows it). But there’s some legal uncertainty over whether the Tax Office’s view will hold up in court. So renewing binding death benefit nominations every three years remains the safest approach (and it’s what Liam recommends to his clients).
  3. Non-binding death benefit nominations. A drawback with binding DBNs is that they don’t give the trustee any flexibility to, for instance, distribute benefits in a tax efficient manner. So some people prefer a non-binding nomination. But this approach is more of a ‘wish list’ than a ‘direction’. You’re indicating your preferences to the trustee but they’re free to make up their own mind as to how the death benefit is distributed. Non-binding DBNs are useful when dealing with independent trustees (for instance, retail or industry super funds), or where you have absolute faith that the trustee will act as you intend. But they don’t offer any legal protection and, in the case of a SMSF consisting of feuding family members, they’re probably useless.

The key point is that if you want certainty about where your super and other assets are going, in the event of your death, you need both a will and a binding death benefit nomination.

Let’s turn now to the case of Ms Conti.

Ioppolo & Hesford v Conti [2013]

If you want to read the full judgement (it’s relatively short) you can do so here. The key facts are:

  1. Ms Conti and her husband were individual trustees of a SMSF.
  2. Ms Conti passed away, leaving her husband as the sole remaining trustee and member.
  3. Over the previous decade, Ms Conti had entered into a number of binding and non-binding DBNs (directing her benefit to her husband) but these had all lapsed.
  4. In her will, Ms Conti had directed that her SMSF balance be paid to her children and she specifically expressed her wish that none of her benefit be paid to the husband.

Ms Conti’s intentions (according to her will) were clear, but who did her husband (as sole remaining SMSF trustee) decide to pay the benefit to? That’s right. Himself.

The children of Ms Conti (who were also the executors of her will) challenged the decision. But the Court decided that Mr Conti was within his rights under the law to pay himself the death benefit. Ms Conti’s wishes and directions (as expressed in her will) had no legal bearing on the decision made by Mr Conti (as trustee of the SMSF).

What might have prevented this situation occurring?

Death benefit nomination

The first answer is a binding DBN. So long as it hadn’t lapsed, a binding DBN would have compelled Mr Conti to distribute Ms Conti’s death benefit to her children. Alternatively she could have indicated (in the DBN) that she wanted it paid to her estate (which would have made the proceeds subject to her will).

Reversionary pension

A reversionary pension would have had a similar effect. In Why you should take a reversionary pension, we explained that this type of pension automatically passes to a named beneficiary. It’s a bit more complicated than just lodging a nomination form but, depending on the circumstances, it can have tax planning and other benefits on top.

Corporate trustee

The other problem in Ms Conti’s case was the lack of a corporate trustee. In Why your SMSF needs a corporate trustee we highlighted another case (Katz v Grossmann) where one individual trustee was able to cause substantial financial damage to the other.

The benefit of a corporate trustee in this case might have been that Ms Conti’s shares in the trustee company could have been left to her estate, allowing the executors to appoint a director to the company, who (depending on the company’s constitution) could have vetoed Mr Conti’s desire to pay the super balance to himself.

One issue with needing to renew binding DBNs every three years is that a member may become incapacitated, rendering them unable to execute a new one. In this instance, being able to impose some control over the trustee (and simply being able to trust anyone involved in the management of your SMSF) can be critical.

This is a complicated area and there are lots of trade-offs involved. Certainty for the SMSF member potentially comes at the expense of flexibility to minimise tax, and flexibility can, in situations like Ms Conti’s, see the entire super balance ending up in the wrong hands.

If you’ve been putting off your estate planning, the case of Ms Conti will hopefully spur you into action, particularly if your family affairs are complicated.

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