Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 335

SMSFs the new battleground in family disputes

SMSFs are often the forgotten part of the succession-planning puzzle and are becoming a battleground for family disputes in Australia. SMSFs often hold the greatest pool of assets for the people in question. 

We see cases where there has been little thought on key issues such as succession of control or passing of death benefits. These have the potential to snowball into major problems, as demonstrated by several recent court cases. 

Many believe their affairs can be dealt with simply via a standard Death Benefit Nomination (DBN). These are easy to prepare, and while they work well in ‘happy family’ scenarios, they may not offer adequate protection when contested.

There are two main issues which have the most potential to create family disputes over an SMSF:

1. SMSF control

SMSF control is exercised by the fund’s trustee(s), as appointed under the terms of the trust deed. But who is best to sit in this position?

A corporate trustee can make succession a smoother transition, provide a clear separation of assets, and give greater protection for directors and shareholders when compared to an individual acting as trustee. The corporate trustee should only act as trustee for the SMSF, to avoid confusion.

It is dangerous to assume a member’s legal personal representative will take control of the SMSF, as superannuation law does not automatically require a legal personal representative to become a trustee in place of the deceased person.

Ensuring control passes with the intended beneficiary (where possible) is key. When using a corporate trustee, this means leaving the shares in the trustee company directly to the intended beneficiary, under the member’s will.

This alleviates the intended beneficiary from having to handle complications, which may arise with a third-party trustee or, in some cases, no trustee at all.

2. Superannuation death benefit nomination

Many SMSFs are comfortable to permit the trustee, which is often the surviving spouse or partner, to decide where the super will be paid. In this case, a non-binding nomination is usually the best option.

When might a binding nomination be more appropriate? First, some questions:

  • Are there children from an earlier or later relationship, which the SMSF wishes to give super?
  • Do you want to give your super to a surviving partner or child, which might become problematic if the gift is made through your Will?
  • Is the estate likely to be subject to a claim or litigation after death?
  • Is there any chance that a trustee might not abide by your wishes?

If it’s YES to any of these questions, a Binding Death Benefit Nomination (BDBN) may be more appropriate.

Importantly, the trust deed’s terms must be complied with if the nomination is to be legally effective and valid.

Whatever your wishes, a DBN should sit together with your will so both documents work together and account for your assets as a whole, ensuring the intended beneficiaries inherit what they are entitled to.

Consequences of not having a clear BDBN 

Let’s consider two examples of the consequences of not having a clear and technically compliant BDBN.:

1. Re Marsella: The case Re Marsella, from 2019, shows a greater willingness by the Court to intervene.

Helen Marsella was survived by her husband and two children from her first marriage, Caroline and Charles. Helen and Caroline had established an SMSF as trustees, with Helen as the sole member. When Helen died, Caroline became the sole trustee of the SMSF.

After Helen’s death, Caroline resolved as surviving trustee to pay the entire death benefit to herself, and also purported to appoint her husband as a trustee.

The Court intervened on the basis that Caroline had failed to inform herself of the relevant matters and thus had failed to actively and genuinely exercise her discretion. This situation could have been avoided if the right person was trustee, and a valid binding nomination was in place.

2. Munro v Munro: The 2015 case of Munro v Munro also shows how missing details in a BDBN’s technical requirements can bring things undone. Precision is vital, and errors may be minimised by seeking independent advice.

Munro left a will naming his daughters as his executors, and a document, prepared by his accountants, purporting to be a BDBN, and nominating the ‘Trustee of Deceased Estate’ to receive the benefits.

A binding nomination can only specify dependants or the member’s legal personal representative. This is required to fulfil Superannuation Industry (Supervision) Act 1993 (SIS) legislation purposes, and for the purposes of the trust deed. A legal personal representative for SIS purposes means the executor of the deceased person’s will (or the administrator of their deceased estate). This created a problem for Munro.

Munro’s document did not nominate either a dependant of Mr Munro or his legal personal representative, which meant it did not comply with either the terms of the trust deed or the SIS legislation. It was therefore not a binding nomination for the purposes of the trust deed. This left the trustee (his wife from his second marriage) with discretion how to pay the death benefits.

If you are in doubt as to whether an appropriate structure is in place, we recommend seeking professional advice.

Adapting to changes

The introduction of the Transfer Balance Caps (TBC) from 1 July 2017 has potential to introduce more complexity into SMSF estate planning.

SMSFs are now limited by the TBC, and members have to consider what to do with the excess. Every situation is different but may involve

  • reversionary pension nominations
  • DBNs dealing with accumulation balances
  • benefits passing to an estate or an individual
  • testamentary trusts and superannuation proceeds testamentary trusts
  • life interest pensions, and
  • child pensions.

These options need to consider the family dynamic, including concerns about estate litigation and the ability of beneficiaries to manage their affairs. In some cases, the best strategy is one that does not provide the best tax outcome.

The key message for avoiding family disputes over an SMSF is to remember it’s not as simple as having a death benefit nomination.

 

William Moore is a Partner and Sam Baring a Senior Associate at Hall & Wilcox Private Clients. This article contains general information only and does not consider the reader’s individual circumstances.

 

RELATED ARTICLES

Meg on SMSFs: Is a binding death benefit nomination worth it?

Watch out, it's not easy being the executor of an estate

Making death benefit nominations work for you

banner

Most viewed in recent weeks

Australian house prices close in on world record

Sydney is set to become the world’s most expensive city for housing over the next 12 months, a new report shows. Our other major cities aren’t far behind unless there are major changes to improve housing affordability.

The case for the $3 million super tax

The Government's proposed tax has copped a lot of flack though I think it's a reasonable approach to improve the long-term sustainability of superannuation and the retirement income system. Here’s why.

Tariffs are a smokescreen to Trump's real endgame

Behind market volatility and tariff threats lies a deeper strategy. Trump’s real goal isn’t trade reform but managing America's massive debts, preserving bond market confidence, and preparing for potential QE.

The super tax and the defined benefits scandal

Australia's superannuation inequities date back to poor decisions made by Parliament two decades ago. If super for the wealthy needs resetting, so too does the defined benefits schemes for our public servants.

Meg on SMSFs: Withdrawing assets ahead of the $3m super tax

The super tax has caused an almighty scuffle, but for SMSFs impacted by the proposed tax, a big question remains: what should they do now? Here are ideas for those wanting to withdraw money from their SMSF.

Getting rich vs staying rich

Strategies to get rich versus stay rich are markedly different. Here is a look at the five main ways to get rich, including through work, business, investing and luck, as well as those that preserve wealth.

Latest Updates

SMSF strategies

Meg on SMSFs: Withdrawing assets ahead of the $3m super tax

The super tax has caused an almighty scuffle, but for SMSFs impacted by the proposed tax, a big question remains: what should they do now? Here are ideas for those wanting to withdraw money from their SMSF.

Superannuation

The huge cost of super tax concessions

The current net annual cost of superannuation tax subsidies is around $40 billion, growing to more than $110 billion by 2060. These subsidies have always been bad policy, representing a waste of taxpayers' money.

Planning

How to avoid inheritance fights

Inspired by the papal conclave, this explores how families can avoid post-death drama through honest conversations, better planning, and trial runs - so there are no surprises when it really matters.

Superannuation

Super contribution splitting

Super contribution splitting allows couples to divide before-tax contributions to super between spouses, maximizing savings. It’s not for everyone, but in the right circumstances, it can be a smart strategy worth exploring.

Economy

Trump vs Powell: Who will blink first?

The US economy faces an unprecedented clash in leadership styles, but the President and Fed Chair could both take a lesson from the other. Not least because the fiscal and monetary authorities need to work together.

Gold

Credit cuts, rising risks, and the case for gold

Shares trade at steep valuations despite higher risks of a recession. Amid doubts that a 60/40 portfolio can still provide enough protection through times of market stress, gold's record shines bright.

Investment strategies

Buffett acolyte warns passive investors of mediocre future returns

While Chris Bloomstan doesn't have the track record of his hero, it's impressive nonetheless. And he's recently warned that today has uncanny resemblances to the 1990s tech bubble and US returns are likely to be disappointing.

Sponsors

Alliances

© 2025 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.