Harry started a business in 1975, which proved successful. His accountant suggested to him in 1976 that he run the business through a trading trust with a corporate trustee.

Harry took that advice and had his accountant establish a discretionary trust with a corporate trustee to run the business (Trading Trust). At the time the corporations legislation did not allow a company to have a sole shareholder or a sole director, so Harry’s accountant held the other share and became the second director.

Harry’s business experienced good growth and in the 1980s, his accountant advised him to establish a separate discretionary trust to hold the assets of the business (Asset Trust), to limit the exposure of those assets to creditors of the Trading Trust. He used the same corporate entity as trustee for both trusts.

In 1987, with the advent of capital gains tax, Harry’s accountant advised him to change the trustee of the Asset Trust to ensure that the taxman would not be able to assert that there was only one trust in existence. Harry followed the accountant’s advice and incorporated a second corporate trustee for the Asset Trust, with Harry holding one share and his accountant holding the other and both of them appointed as directors.

Harry had 3 children, Anthea in 1984, Ben in 1986 and Clare in 1988. Each of these children now have two children of their own. He married the mother of his three children, Daisy in 1988 and his business continued to grow.

In 1992 Harry established a self-managed superannuation fund (SMSF) with himself and Daisy as the trustees and members of the fund.

Harry’s business continued to flourish, and in 2006, on the advice of his accountant, he purchased a holiday home through a further discretionary trust (Discretionary Trust). To save on accounting fees Harry used the same corporate trustee as his Asset Trust. As permitted by the Corporations Act Harry became the sole shareholder and director of the corporate trustee.

Finally, in 2010, Harry made a will in which he left everything to Daisy and if she predeceased him, to his three children as tenants in common in equal shares.

At that time, Anthea and Ben were involved in the business and he was anticipating that they would take over the business in due course.

Harry divorced Daisy in 2012.  She was not happy about this and as a result of the divorce, Harry fell out with Clare, who is now estranged from him. Despite the divorce, Daisy insisted on remaining in the SMSF, both as a member and as a trustee, as Harry had proven himself to be adept at accumulating assets in that fund.

Harry entered into another relationship in 2015 with Rose and in 2016 had a further child with her, Derek.

Aware that Daisy was still one of the trustees of the SMSF, in 2020 Harry consulted his accountant who advised him to execute a binding death benefit nomination for his superannuation to direct the proceeds of the superannuation fund to Rose and Derek. He also amended his will to make his eldest child, Anthea his executor. Harry did not have any enduring power of attorney nor enduring guardianship in place.

Unfortunately, Harry was hit by a car in 2022, and died 10 days later, not having further amended his 2010 will.  At the time of his death, he had 3 adult children (Anthea, Ben and Clare), an ex-wife (Daisy), a current de facto partner (Rose) and a minor child (Derek).

Following his death, the documents relevant to Harry’s estate include:

• Memorandum & Articles of Trading Trust Corporate Trustee;
• Trust Deed of Trading Trust;
• Memorandum & Articles of Asset Trust Corporate Trustee;
• Trust Deed of Asset Trust;
• Constitution of Discretionary Trust’s Corporate Trustee;
• Trust Deed of Discretionary Trust;
• Deed of Harry’s SMSF;
• Harry’s binding death benefit nomination; and
• Harry’s last will and testament (executed in 2010, and subsequently amended to appoint Anthea as executor).

Anthea thought that as each adult child was to receive a third of their father’s estate, it would be a relatively simple estate, particularly when her father had told her that the superannuation was going to Rose to look after her and her step-brother, Derek. At least she thought Harry had taken care of Rose and Derek.

The apparent simplicity of Harry’s will soon lost its sheen, when his executor realised that, although her mother, Daisy was not able to claim under the will by virtue of section 13 of the Succession Act, the simple bequest of all of Harry’s estate to the three adult children meant that all three adult children jointly owned the shares in the corporate trustees of the Trading Trust, the Asset Trust and the Discretionary Trust, while her mother became the sole remaining trustee of the SMSF.

Daisy remains a trustee of the SMSF. The SMSF trust deed included a typical provision that if trustees are individuals and, as a consequence of the death of the other trustee (or all other trustees) only one trustee survives, the remaining trustee must appoint a further trustee to ensure that the fund did not become ‘non-complying’.  In circumstances where only one trustee remains, that trustee only has the power to appoint a further trustee (subject to the exemption that a self-managed super fund has a grace period of six months in the event of an occurrence such as the death of a trustee).

Harry’s executor daughter, Anthea is relieved to know that her father had completed a binding death benefit nomination (BDBN) nominating Rose and Derek, as the dependents to receive Harry’s not insubstantial superannuation.

However, Daisy and his estranged child, Clare have other ideas – Daisy appoints Clare as the second trustee for the fund and they then proceed to appoint a corporate trustee of which they are the directors to avoid any potential non-compliance issues arising from Harry’s death.

When Harry was drafting his BDBN, he was advised to ensure that the form of the BDBN complied with the SIS Regulations, specifically Reg 6.17A. Harry did this without reference to the SMSF deed, which specifically provided that a valid BDBN must be in writing addressed to the trustee, signed by the member, dated and witnessed by two people who were not tax dependents of the member.

Harry got almost everything right. His BDBN was in writing addressed to the trustee, signed by him and dated, but his accountant and his de facto partner, Rose had witnessed it. As such, it was invalid. Anthea was informed that Reg 6.17A does not apply to a SMSF but in such a case, the proposed BDBN must comply with the super fund deed in order to be valid. In Harry’s case it did not comply, was not valid, the trustee was not bound by it and the trustee (the corporate trustee appointed by Daisy and Clare) paid the balance of the fund to Clare.

As assets held in trusts and companies do not constitute part of a deceased person’s estate, the assets held in the Trading Trust, the Asset Trust and the Discretionary Trust do not form part of Harry’s estate. The shares in each of the trusts’ corporate trustees do form part of the estate, but that is all. By his will, Harry has not given outright ownership of the shares in the corporate trustees to any one person, with all three children having a one third share of each of the two shares in each of the trustees.

Harry’s two children involved with the business now face the prospect of having to put a voluntary administrator into the trustee companies and the trusts or strike a deal with their estranged sibling.

Even if the siblings and the de facto partner can reach a resolution regarding the distribution of assets under a Deed of Family Arrangement, there are probable adverse stamp duty implications as the various transfers of land or assets may be subject to stamp duty because they were not made pursuant to a will.

Had Harry obtained competent legal advice and updated his will, he could have divided his ‘assets’ as follows:

• The shares in the trustees of the Trading Trust and the Asset Trust to go to the two children involved in the business, and to whom Harry had wanted the business to go. They could have been bequeathed to two testamentary trusts, one for each of those two children.

• The shares in the trustee of the Discretionary Trust to go to the estranged child, Clare so as to keep her assets separate from the other two adult children, and to attempt to stop her from meddling in the business.

• A valid BDBN having the proceeds paid to the estate, with the terms of Harry’s will directing the executor to establish a superannuation death benefits trust, could have secured Harry’s superannuation for Rose and Derek. 

• Any inequity could be resolved by using an adjustment clause in his will to ensure the bank accounts (cash) were available to achieve parity between the parties.

A piece of simple advice to Harry to ensure that he had a valid enduring Power of Attorney may also have simplified matters greatly.

Firstly, if in his enduring Power of Attorney, Harry had authorised his attorney to withdraw all funds/assets from the SMSF in circumstances where Harry was unlikely to survive (as occurred), the attorney could have withdrawn cash or sold shares and deposited the proceeds and cash into a bank account in Harry’s name to avoid some or all of the tax imposed on the transfer of assets out of a superannuation fund after the death of the member.

Secondly, section 17A(3(b) of the SIS Act authorises a legal personal representative that has an enduring Power of Attorney to become a trustee of the super fund. Provided Anthea accepted her appointment in accordance with the SMSF deed she could have been a trustee and so have potentially precluded the super fund proceeds from going to Clare rather than to Rose and Derek, as Harry had wished.

Had Harry obtained up to date advice, the division of his estate could have proceeded in an orderly manner, noting that any one of the parties could still have brought proceedings under the Succession Act, something no planning can completely avoid.

As can be seen from the various scenarios set out in this article, there are complexities and subtleties that arise from wills. In drafting wills, enduring powers of attorney and enduring guardianships, care and consideration need to be given to the documents forming the basis of any estate planning and how those documents impact on the testator’s intentions.

If properly drafted (and executed), the documents can assist those intentions, but conversely, if not well drafted and properly executed, they may subvert those testamentary intentions. Understanding the documents and their potential effects on the testamentary intentions of the will-maker is essential to providing sound, practical estate advice.  It is also important to regularly review an estate plan and its constituent documents, particularly following a marriage, divorce, death of a beneficiary or other ‘significant life event’.

This article is not legal advice.  It is intended to provide commentary and general information only.  Each will or estate planning exercise is of its nature generally unique to that person.  Access to this article does not entitle you to rely on it as legal advice.  You should obtain formal legal advice specific to your own situation.  Please contact us if you require advice on matters covered by this article.