There continue to be court cases challenging the payment of death benefits from SMSFs. The latest challenges deal with conflict of interest situations.
When is conflict established?
The court cases confirm that a conflict of interest can exist when the same person who is acting as the executor is also seeking to be paid the superannuation death benefits.
The facts of each case will determine if an actual conflict of interest exists and whether it has any bearing on how the death benefits have been distributed.
What are other examples of death benefit issues in SMSFs?
There have been several court cases dealing with the technicalities of binding death benefit nominations (BDBNs). In particular, the courts have focussed on whether the nominations comply with the trust deed provisions applying to the Fund.
Often BDBN templates are used which may not accord with trust deed provisions. For example, if the trust deed requires the BDBN form to conform with SIS Regulation 6.17A.
As well as setting out the form of the BDBN, the trust deed provisions will determine who can make and update a BDBN.
Another important aspect in dealing with death benefits is being clear on who will control the SMSF. Examples of control issues include ineffective trust deed amendments or trustee change documents so there has been confusion as to who is in control.
In other cases, trust deed provisions have been ignored entirely and those with practical control have paid benefits to themselves.
Those in control of distribution SMSF death benefits have legal duties to follow even if there are no death benefit nominations in place. In this case, issues can arise if the person controlling the distribution does not make proper real and genuine consideration of who to distribute the superannuation death benefits to.
How to avoid unwanted outcomes?
Achieving desired outcomes starts with understanding the importance of your SMSF legal documents.
Ideally you will have on file the entire chain of trust deeds and be able to have a lawyer review and confirm that the current trust deed provisions effectively apply to the SMSF.
You can then work with your adviser and lawyer to understand these trust deed provisions and what they say about who can control the SMSF, the type of death benefit nominations you can make, who can make them and how they need to be put in place for them to be effective.
How can Keep It Simple Super help?
Keep It Simple Super provides an SMSF Document service where the SMSF chain of trust deed and trustee change documents can be reviewed and every document is approved and issued by the lawyer we work with.
Become a user of our SMSF documents here – SMSF Documents for Accountants & Financial Advisers (keepitsimplesuper.com.au)