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SMSF Succession Planning

Published: May 04, 2015 | Author: Chloe Kopilovic

I recently read the case Ioppolo v Conti [2015] WASCA 45 with interest. This case addresses a number of issues which need to be taken into consideration when devising a succession plan for your SMSF (SMSF Succession Plan).

Facts of Ioppolo v Conti

In summary the facts of Ioppolo v Conti are:

  1. Mr and Mrs Conti were the individual trustees and members of their SMSF;
  2. Mrs Conti had several children from a previous relationship. Mrs Conti’s will stated that her superannuation entitlements were to be paid to her children;
  3. Mrs Conti did not have a binding death benefit nomination (BDBN);
  4. Upon the death of Mrs Conti, Mr Conti appointed a company named Augusto Investments Pty Ltd to act as trustee of the SMSF.

Issues

The case raises a few issues that I see raised regularly:

  1. Was the SMSF in breach of Superannuation Industry (Supervision) Act 1993 (Cth) because upon the death of Mrs Conti, the SMSF only had one trustee?
  2. Do the executors of an estate automatically take the place of a trustee of an SMSF who is deceased?
  3. Was the trustee of the SMSF obliged to pay Mrs Conti’s superannuation entitlements to the children of the deceased?

A trustee of an SMSF has six months to remedy a breach of section 17A of the SIS Act

Section 17A of the SIS Act imposes conditions on an SMSF, one of which is that an SMSF cannot have less than two individual trustees. However, it provides that an SMSF does not cease to be such a fund until after six months after the failure to meet any of the conditions.

The plaintiffs in this case (the executors of Mrs Conti’s estate) argued that the fund failed to meet the conditions in section 17A of the SIS Act.

This argument failed. There was no obligation on Mr Conti to appoint one of the executors trustee. As Mr Conti appointed a corporate trustee within 6 months of Mrs Conti’s passing, the breach had been remedied.

The executors do not always take the place of a trustee of an SMSF who is deceased

The best place to find out who will be the trustee upon the death of a trustee is the SMSF trust deed.

There is a common premise that an executor will automatically take the place of a deceased trustee. This is not correct.

In this case, the executors argued that the trust deed required Mrs Conti’s legal personal representative to be appointed as trustee of the SMSF.

This claim failed. The surviving trustee must act in accordance with the terms of the deed. There was no obligation in section 17A of the SIS Act or the deed requiring Mr Conti to appoint the legal representatives of Mrs Conti’s estate trustee of the SMSF.

The importance of an BDBN

As there was no BDBN in place, shortly after Augusto Investments Pty Ltd was appointed trustee of the SMSF, there was a decision to pay Mr Conti all of Mrs Conti’s superannuation entitlements, and none to her children.

The executors argued that Augusto Investments Pty Ltd had acted in bad faith because Mrs Conti’s specific wishes were to pay her superannuation entitlements to her children as outlined in the will.

This argument failed. The SIS Act outlines a strict regime for BDBN. As there was no BDBN, the decision of who the superannuation entitlements would be paid to was a decision for the trustee of the SMSF.

Do not take risks with your SMSF succession plan

When dealing with your succession plan for your SMSF it is imperative that you seek advice in relation to any compliance issues raised in your plan. If you have any questions about your SMSF succession plan, please do not hesitate to contact me.

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