Superannuation binding death benefit nomination versus Will

In July 2002 Francesca and Augusto Conti established a self managed superannuation fund (SMSF) they were its only trustees and members.

Following Francesca’s death in August 2010, Augusto retired as a trustee of the SMSF and appointed as trustee a corporation of which he was a director.

Francesca had made a will dated 13 January 2005 leaving her superannuation entitlements to her children expressly stating that she did not want any superannuation entitlement paid to Augusto. However she did not complete a binding written direction to the trustee of the SMSF that reflected these wishes.

The SMSF rules stated that unless there is a binding written direction from a deceased member, the trustees had the absolute discretion pay the death benefit to a spouse, or child of the member or any other person who in the opinion of the trustees was dependent on the member at the time of their death. As Francesca left no binding written direction the corporate trustee decided to pay Francesca’s death benefit of $648,586 to Augusto.

Francesca’s children (as executors of her estate) took action against Augusto and the corporate trustee arguing that they had not acted in good faith. The Court decided that as Augusto had taken specialist advice as to his rights and obligations the executors argument that the SMSF trustee had not acted in a bona fide manner was rejected. The Court also took the view that superannuation law allows the trustee to ignore the direction in Francesca’s will.

The Court noted that this case illustrates how problems can arise in the administration of a fund and that in this case lead to substantial financial and emotional cost to Francessca’s children.