SUPERANNUATION UPDATES
Joseph John Gilles, Partner
Put $600,000.00 into your Super Fund without Penalty
The Federal Government, in its budget in May 2018, announced a program to encourage older people i.e. over sixty five (65) years who wish to downsize their residence of at least ten (10) years, allowing each husband and wife or partners to place $300,000.00 each from the proceeds of sale of their downsizing into superannuation without penalty.
The extra $300,000.00 (subject to making the contribution within ninety (90) days of settlement of the sale) can be added to the existing $1.6 million super cap without breaching it. What this means is that each self-funded retiree can have $1.9 million in their superannuation balance cap.
The effect of the extra sum allowed in the transfer balance cap means that all earnings on $1.9 million are tax free to the superannuation fund and eventually to the superannuant.
Many people do not think when they are selling their home, to do this. If you are selling your home of at least ten (10) years and are over the age of sixty five (65) years, this is available to you.
If you require any further information about this, please contact us.
Binding Death Benefit Nominations
Monies which you hold in your Superannuation Fund are controlled by the Trustee of the fund and not you. In other words, it cannot form part of your Estate to give to anyone.
Whether or not your Superannuation Fund balance goes to the person whom you choose, will depend on whether or not you have a Binding Death Benefit Nomination (BDBN) or a Non Revocable Binding Nomination (if you have your own Superannuation Fund called an SMSF).
When deciding whether or not to pay your Superannuation Fund benefit to the person you nominate (other than in a BDBN or a NRBN) the Trustee will consider the following:-
- Who are your dependents?
- The extent of their dependency.
- What you have said in your Will or other document.
- Any nomination you make to the Trustee.
The only way to ensure that your benefit goes to the person you wish is to have BDBN or NRBN.
An example of how lack of planning can adversely affect you is the recent case of Wareham v Marsella. This is a decision of the Victorian Court of Appeal in 2020.
CASE: Wareham v Marsella [2020] VSCA 92
Original case:
In 2003 Helen Marsella established an SMSF, where she was the founder and only member. Her daughter Caroline was the second individual trustee. At the time of Ms Marsella’s death in 2016, there was a little over $450,000 in the fund and a BDBN instructing the trustees to pay Helen’s benefit to her grandchildren from her first marriage. Unfortunately, this BDBN was invalid; the grandchildren were not dependants under superannuation law and the BDBN had lapsed.
Caroline, as the remaining sole individual trustee of the SMSF, distributed the entire death benefit to herself as a dependant of the deceased member (her mother Helen). Realising she needed a second individual as trustee, she subsequently appointed her husband Martin as a second individual trustee and executed new documents paying the benefit to herself.
Ricardo Marsella, Helen’s second husband of 32 years, claimed the death benefit should instead have been paid to him either as executor of Helen’s estate or personally, and that an independent trustee should be appointed to properly consider the exercise of the discretion and appoint the death benefit.
What was the outcome?
Whilst trustees have discretion in the absence of a valid BDBN, their powers need to be exercised in good faith, with real and genuine consideration for any potential beneficiaries. It is not the Court’s role to determine whether a discretion is wisely exercised; only if it is in good faith and after genuine consideration.
However, it was found Caroline had not fulfilled her trustee duty and had acted improperly and in bad faith. The Court determined she had not properly considered Ricardo as a potential beneficiary. Such a reluctance to consider Ricardo, in the mind of the court, showed an “ill-informed arbitrariness” in exercising her trustee discretion, therefore showing bad faith.
The fact Caroline paid the benefit to herself also countered her claim she was following her Mother’s wishes, by excluding Ricardo as a potential beneficiary of the super fund. The invalid BDBN stated the payment was to go to Helen’s grandchildren. Both Caroline and her brother Charles had children, so if this statement were true, Caroline would have paid to benefit to herself and her brother.
The Court concluded the trustee’s discretion to distribute the death benefit was exercised without real and genuine consideration, was arbitrary and an unreasonable exercise of trustee power. Subsequently it was set aside. Furthermore, Caroline and her brother were removed as trustees and Ricardo was asked to file further submissions as to the identity of a possible independent replacement trustee.
The Court of Appeal confirmed the decision of the trial judge and dismissed the subsequent appeal.
Important takeaways from this case
This decision makes clear the importance of a valid BDBN. If Helen wanted her superannuation benefit to go to her grandchildren, a BDBN to her estate would have made her grandchildren beneficiaries through her will.
SMSFs can have non-lapsing BDBNs, which means they do not have to be renewed every three years. The Giles Payne trust deed allows for non-lapsing BDBNs.
The control of an SMSF remains crucial as a BDBN itself is NOT enough to guarantee a death benefit will be paid as the member intends.
Good documentation is crucial to show prudent trustee decision-making processes. Trustees must be seen to making enquiries about a potential beneficiaries’ circumstances in order to demonstrate real and genuine consideration before paying a death benefit.
Specialist advice should always be obtained in these circumstances. Much of what occurred in this case could have been avoided if the correct advice had been provided.
Most people do not know who they have nominated in their Superannuation Fund to take their benefit. What we are saying is, because your Superannuation is a significant asset to you, you should take care, just like when you do a Will, to make sure that you say to the Trustee where you want your benefit to go. If you don’t then the Trustee can decide for themselves.
HIDDEN COSTS WHEN YOU RENOVATE or BUILD
Gregory George Eliades, Partner
Scenario 1:
Barry enters into a building contract for $700,000 and a new home is built on his land. He decides to sell a few years later and attends our office to give instructions. Barry is given an interim Occupation certificate “IOC” which permitted him to move into the property. We ask Barry to provide his Final Occupation Certificate “FOC”, his Council approved plans and his Builders Home Owners Warranty Insurance to annex to the Contract for Sale. Barry asks his Private Certifier to provide these documents to our office as they were not given to him at the completion of the build. Much to Barry’s disappointment the Private Certifier could not give an FOC without certain works being completed eg raising the internal stairs balustrade 2cm to comply with Council Ordinances. He discovers that at a cost of $1600.00 the work can be done, inspected and the certificate issued.
The lesson learned here is for you to ascertain what you get for the price you paid? Clearly Barry would have expected that after completion of the work evidence that all Council Compliance was in order and that there would be no further cost. You should make sure that there are no additional costs in your Building Contract and that you see evidence of the legal right to be able to move into your new home.
Scenario 2:
Josie purchases a Holiday home which has had major renovations supposedly with Council Approval. No FOC or IOC were supplied by the Owner/Vendor.
How was the Owner permitted to move into the property in the first place when no such certificates were issued?
We ensured that the Owner obtained the FOC at their own expense prior to settling Josie’s purchase of this property.
First Home Buyers Beware
Osman Aydogan, Solicitor
Buying your first home could be the most expensive purchase of your lifetime.
It is an important milestone and usually the gratifying end of painstaking years saving for a deposit, controlling leisure spending and, for some, having to move back in with mum and dad for several months, if not years.
Unfortunately, we see many inexperienced buyers who succumb to external pressure including from their spouses or commission hungry agents, and enter into a legally binding contract for the purchase of their first home without doing their due diligence and seeking legal advice.
We strongly advise anyone buying property in NSW to obtain legal advice before signing the contract or bidding at an auction.
There are a number of risks which you may face when buying residential property which may see you lose your entire deposit or be left with a property that has significant problems.
Some dangers you may face when buying property include:-
- Failing to obtain unconditional approval from your lender prior to exchange of contracts. If you do not have the required funds by the settlement date then you would be in breach of the Contract and could lose your entire deposit plus more;
- Failing to understand your tax, stamp duty, insurance and other financial obligations which can cause you problems during or after your purchase;
- Unfair contract terms that force you to pay the vendor’s additional fees, levies, and taxes;
- A non-compliant swimming pool that forces you to rectify any issues at your own cost and within short timeframes;
- Receiving Council orders after your purchase to do certain work, or to demolish all or part of a building, due to illegal, unauthorised or non-compliant structures on the land;
- Buying into a unit/apartment in a strata complex that has significant building defects and/or is in the midst of litigation.
- Being unable to develop or use the property as you intended due to easements, restrictions, zoning and development restrictions; and
- Buying property that is dilapidated or infested with termites. You take the property as it is at the date the Contract is made.
At Giles Payne & Co our team of experienced property lawyers and conveyancing staff deal with each matter with upmost determination and commitment, striving to limit your exposure to such dangers and providing you with guidance and assistance every step of the way.
PROTECTING YOUR WILL?
Paula L. Becker, Senior Associate
Whether or not you make a Will during your life, following your death your estate can be subject to certain challenges.
A ‘Family Provision Claim’ is a claim made by close family members, friends or partners who are dissatisfied with the inheritance, if any, they receive from your estate either by your Will or by default if you did not make a Will.
These claims can only be made by eligible persons who are:-
- Spouses (i.e. husband or wife),
- de facto partners at the time of death,
- children (minor or adult),
- former spouse,
- a person:
- who was, at any particular time, wholly or partly dependent on the deceased person, AND
- who is a grandchild of the deceased person OR was, at that particular time or at any other time, a member of the household of which the deceased person was a member,
- a person with whom the deceased person was living in a close personal relationship at the time of the deceased person’s death.
An applicant must commence their claim within 12 months of the deceased’s death unless there are special circumstances.
A Court will only make a Family Provision Order if “adequate provision for the proper maintenance, education or advancement in life of the person in whose favour the order is to be made has not been made by the will of the deceased person”.
A Court will consider many factors when determining if adequate provision has or has not been made in a Will for the applicant, and if not made, what provision should be made.
These factors include but are not limited to:-
- the nature and duration of their relationship with the deceased,
- the size of the estate,
- the financial resources of the applicant and the other beneficiaries,
- any physical, intellectual or mental disability of the applicant or other beneficiaries, and
- any contributions made by the applicant towards the deceased person’s estate during their lifetime.
If you would like some advice about Family Provision Claims or how to protect your estate in a will, then please contact our office to speak to one of our experienced Wills and Estates lawyers.
ELDER ABUSE?
Marilyn Rossides, Senior Associate
The World Health Organization defines elder abuse as “A single or repeated act, or lack of appropriate action, occurring within any relationship where there is an expectation of trust that causes harm or distress to an older person”.
Elder abuse comes in many forms:
- It can be financial or psychological, physical, sexual or neglect and can include stand-alone abuse or a combination of the different types of abuse;
- It can be intentional or unintentional;
- It can occur once, or many times;
- It can be carried out by someone known to the older person, like a family member, friend, professional or caregiver.
Many of our elderly reach the point where they are unable to live alone and must move into nursing home facilities or live with their family or friends otherwise they are left in their homes without the appropriate care and attention.
Financial abuse of the elderly has become widespread in recent times. Carers are taking financial control of the elder person’s affairs and mismanaging funds for their own use and leaving the elder person with insufficient funds to meet their living and medical expenses. Very often, children are the abusers and due to family dynamics and a fear of loneliness, the elder person is reluctant to report the abuse making it difficult for any action to be taken to protect them.
Steps can be taken to reduce the risks of elder abuse if clear parameters and directions are given in a Power of Attorney which can appoint another trusted person to manage their financial affairs and gives clear directions as to how they wish their finances to be applied in the future.
Equally as important are directions that can be given in a Deed of Enduring Guardian which can give authority to a trusted person to make health and medical decisions on their behalf and ultimate decisions in relation to entering into a nursing home or remaining at home with appropriate care.
If you have any concerns about your own or your family member’s current or future welfare, please contact us to discuss these concerns so we can advise you.
As a community it is important that we look out for each other. If you suspect or have witnessed an incident of elder abuse, your concerns should be reported to the following:
The Ageing and Disability Abuse hotline – 1800 628 221.
NSW Police – Any incident of crime to an older person in our community is a serious crime whether committed in the home, community or in residential aged care.