One of the most common requests we receive is for a “simple Will”.
Unfortunately, the use of companies and trusts to hold assets, blended families, divorce, defacto relationships and superannuation can make the drafting of wills a complex business. In general, if a client has a complex life there is every likelihood that his or her estate planning will also be complex.
Superannuation is a case in point.
Superannuation is held by a trustee whose actions are governed by a superannuation trust deed. The trust deed (not the Will) regulates to whom the trustee may pay the superannuation entitlement of a member who dies.
Many superannuation funds allow a member to make a “binding death benefit nomination” which is a document nominating who is to receive the member’s superannuation on his or her death. However, an investigation needs to be made to see what rules apply to the fund. If the binding death benefit nomination can be made, the member must attend to making the binding death benefit nomination. A Will is insufficient.
In the case of a self managed superannuation fund, an examination of the trust deed needs to be undertaken to see how a member’s benefit can be distributed. Usually, a binding death benefit nomination will be possible.
However, the range of possibilities depends on the terms of the superannuation trust deed. Consideration might have to be given to whether the superannuation deed needs to be amended to achieve the desired outcome.
Tax is also an important consideration as a member’s death benefit will be taxable if it is paid to a non tax dependent.
In a case heard in the Supreme Court of W.A. on 24 October 2013, a member of a self managed superannuation fund had died. The deceased and her husband were the only members and trustees of the fund. In her Will (dare I say her simple will) the deceased stated that she wished the children of her first marriage to benefit from her superannuation, not her second husband. However, she did not make a binding death benefit nomination to that effect before her death.
When the deceased died the remaining trustee was the second husband. He then appointed a company as sole trustee of the self managed superannuation fund and he became the sole director and shareholder of new trustee company. The trustee company did not exercise its discretion to benefit the deceased’s children. The children of the first marriage then commenced action in the Supreme Court complaining that the trustee did not exercise its discretion in a bone fide manner.
The Court officer dealing with the case said “…the trustee was entitled to ignore the direction in the Will and the mere fact he did so could not in and of itself be evidence of a lack of bona fides.” The case was dismissed and the children did not benefit as intended by their mother. An appeal was launched by the children but the appeal was dismissed in 2015.
A similar case is Dabnete & Brot 2014 FamCA 280 (2 May 2014). The parties had been married for 14 years and reached a property settlement by consent whereby they each retained their own accumulated superannuation within the superannuation fund. However, they never divorced. About 11 years later the husband died. The wife then applied for her estranged husband’s superannuation entitlement. What ensued was a complex case in the Family Court where the executors of the husband’s estate sought to set aside the original property orders made some years before. The ultimate outcome of this no doubt expensive case was that the estranged wife kept the superannuation entitlement but was required to make an adjusting payment to her husband’s estate.
Similar problems arise when individuals hold assets in companies and trust. These entities are set up by lawyers and accountants to achieve tax and estate protection outcomes. What is often missed by the clients is that they may no longer “own” the asset held in the trust or company. They may control the asset in their lifetime, but on death the asset may be controlled by others. A well known example is Lang Hancock. He left an elaborate Will but on his death his control of Hancock Prospecting Pty Ltd lapsed. He had no substantial assets to leave and his estate was bankrupted.
To effectively advise on a Will we will always need to review the company and trust structure in which assets are held and the accounts for each entity. We will need to consider what superannuation there is and how that Will be dealt with on the death of the fund member.
So, is there such a thing as the “simple will”? For most of our clients their Will is part of their overall tax planning, deserving of our close attention and far from a simple matter. The simple Will is all but dead.