Don't let your clients' assets fall into the wrong hands… how to prevent future control issues

The cases referred to in Julie's article highlight the importance of proper estate planning both at the adviser level and when implementing an estate plan. It's interesting to note that in the Munro v Munro case even Mr Munro who was a solicitor got it wrong!

Without knowing Mr Munro's background it's difficult to say what experience he had in estate planning but perhaps one lesson to take is that not all solicitors have the necessary level of expertise in estate planning - especially ones who work in other jurisdictions.

You and your clients need certainty that you are receiving the correct estate planning advice and this comes from using experienced practitioners in the field. Estate planning needs to extend to a complete knowledge of superannuation, estate administration (at a practical level) and any tax implications arising from these areas.

How could these control issues have been averted? By appropriate estate planning!

In summary, the issues which should have been addressed in each case are outlined below.

Ioppolo v Conti

Control - A lack of understanding of control issues within the super fund. It is one thing to appoint executors who you want to manage or control your estate, but this is useless if the funds are never transferred into the estate.

Wooster v Morris

Control - Control of the SMSF was not given to the appropriate people although the required result was achieved in the end, with the children receiving the death benefit.

Munro v Munro

Control and incorrect wording in the SMSF binding death benefit nomination.

McIntosh

Arguably there was a lack of understanding or thought process behind who should have been appointed as administrator. This could have been avoided if a trustee company was appointed to act as an independent trustee.

If for instance we were appointed as trustee, there is no doubt that our responsibility would be to not only maximise the estate's value but to give consideration to any decision made by the super fund trustees. We are often required to object to or agree to a super fund trustee's decision and if necessary attend a conciliation conference initiated by the Superannuation Complaints Tribunal.

The super fund trustees do not always get it right and this has been shown on several occasions when decisions were changed after representations by us. The upshot of all of this is that the appointment of an appropriate executor does provide independence and will solve self-serving interests, such as those  shown in the McIntosh case.

What occurs in our estate planning process to ensure control issues are addressed?

Initial steps:

  • All SMSF deeds and corporate constitutions are obtained from the client and read in order to understand what provisions they contain in relation to 'control' issues.
  • All family trust deeds are obtained and read in order to understand what provisions they contain in relation to 'control' issues.
  • All existing binding nominations are reviewed to ensure they are compliant and are drafted correctly.

Required action:

  • The SMSF deed may need to be amended to allow the estate planning outcome to be achieved.
  • Binding death benefit nominations are carefully drafted to ensure 100% compliance with desired outcomes – nothing is left to chance.
  • The family trust deed is read to understand who will control the trust's assets after the client dies. Either the trust deed is amended or provisions are inserted into the Will to ensure that control of the trust passes as per the client's wishes.

Initial steps:

  • Proper and detailed instructions are taken from the client to identify control issues and what measures need to be actioned to achieve their estate planning goals.

Required action:

  • The Will is drafted to ensure that control passes appropriately. The appointment of the executor is critical. There is no point having the surviving spouse in control of funds that are intended to pass to the children from the first marriage.
  • 'Equalisation' is an appropriately drafted clause in the Will that allows the executor to equalise estate benefits amongst beneficiaries where one beneficiary unexpectedly receives a benefit outside of the estate (for example directly from super). Whilst this should not occur, if properly planned, this provision provides a back-up and can be a critical tool to assist unintended consequences.

Summary

Professional estate planning advice is paramount to ensure that your client's estate is controlled as per their wishes when they pass away. By following the above steps, both you and your clients can be confident that what is intended will actually take place.

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