Podcast: Sudden death

Robert Patterson: Welcome to episode two of iWills Executor Insights. I’m Rob Patterson, and joining me today are Teresa Catalano, Managing Principal of iWills Legal, and Darryl Smith, Partner with HLB Mann Judd Chartered Accountants. Welcome back, Teresa.

Teresa Catalano: Thanks, Rob.

Robert Patterson: Darryl, can you provide listeners with a brief outline of your background?

Darryl Smith: Sure, Rob. I’m an accountant and have been in practice for over 30 years, mainly servicing private clients with financial, accounting, taxation and planning needs. Over the years I’ve developed experience in self-managed super funds, as well as assisting clients with estate planning and estate administration when required.

Robert Patterson: So you’re well qualified to join us today.

Darryl Smith: I’m looking forward to it, Rob.

Robert Patterson: This series aims to give insight into the responsibilities of executors, highlight common traps and share practical tips. In this episode we’re looking at a situation often faced by executors: a sudden, unexpected death. Darryl, you’ve been in this circumstance as an executor. What were the initial steps you took?

Darryl Smith: It’s obviously a very distressing and emotional time. What I found worked best was to help educate the family about their financial affairs and those of the person who had passed away — in this case, their father. I focussed on explaining financial matters, tax matters, the will and the estate. It was largely an education process initially, followed by helping them develop a financial plan for how to work through everything.

Because the deceased was heavily involved in a business, I also worked with the business partners and the family to determine what involvement the family needed moving forward.

Robert Patterson: How familiar was the family with the financial situation?

Darryl Smith: They had some knowledge but not a detailed understanding. There were companies, trusts and a super fund involved, so I explained how everything was structured so they could understand the overall asset and liability position.

Robert Patterson: And all of this while dealing with grief at the same time.

Darryl Smith: Exactly. It’s very emotional and each family member has their own personality and way of processing it. You need to support them personally as well as professionally.

Robert Patterson: Teresa, what was Darryl’s legal responsibility regarding the business? Does he have to sell it? Do wills usually contain family succession plans?

Teresa Catalano: Great question. A common misconception is that the will controls the succession of a business or the trust and superannuation entities associated with it. That’s usually not the case.
Businesses are commonly operated through private companies or trust structures, and the control of these entities often sits outside the will.

In Darryl’s situation, even though he’s the executor, he may not be the person who controls the business entity. He first needs to identify who now holds that control. Only then can decisions be made about whether the business can or should be sold.

Business succession is often governed by shareholders agreements containing buy–sell provisions, which may require a sale on the death of an owner.

Robert Patterson: So you would look to the shareholders agreement and, if there’s a buy–sell provision, possibly involve the insurer?

Teresa Catalano: Exactly. And the executor or controller should always be guided by the relevant advisors — the accountant, financial advisor and lawyer.

Robert Patterson: Darryl, going back to the planning stage, what steps can business owners take before death to prepare their beneficiaries and ensure a smoother transition?

Darryl Smith: Education is crucial. Once children reach a suitable level of maturity — often in their early twenties — involve them in the planning and, where appropriate, in the business.

Regular family meetings every six months or so can gradually build their understanding.
It’s also important to consider whether family members actually want to be involved in the business. Some partnerships have a principle that family members never enter the business, while others welcome succession. It depends entirely on the business and people involved.

Robert Patterson: What about the corporate structures themselves? Anything that would make administration easier?

Darryl Smith: Yes. One key issue is who the trustee of your self-managed super fund is. Assets of the fund are held in the trustee’s name, so if you have individual trustees and one dies, you need to update ownership of every asset.

Banks and registries make this process slow and frustrating.

I strongly recommend that people with individual trustees consider moving to a corporate trustee, especially as they approach retirement. It simplifies administration enormously.

Robert Patterson: Teresa, when changing a trustee, is there anything you need to be careful of in terms of resettling the trust?

Teresa Catalano: Changing a trustee doesn’t usually resettle a trust, but you must follow the mechanism set out in the trust deed. Typically, the appointor or principal has the power to change the trustee. You then prepare a deed of change of trustee to formalise the appointment.

Robert Patterson: Let’s talk about super. What does a binding death benefit nomination mean, and is it always binding?

Teresa Catalano: No, it’s not always binding. In retail and industry super funds, many nominations are lapsing, meaning they expire every three years unless renewed. Some funds now offer non-lapsing options, but people often misunderstand the forms and assume their nomination is indefinitely binding when it’s not.

In self-managed super funds, the trustee deed determines what nominations are allowed. SMSFs offer more flexibility, including cascading nominations. But they still must be made correctly or they can be invalid.

Also, even a valid nomination can become invalid if the nominated person is not a “superannuation dependant” at the time of death.

Robert Patterson: If a nomination is invalid or lapses, what happens?

Teresa Catalano: The trustee has discretion to pay the death benefit to one or more superannuation dependants, or to the estate. That can create delays, extra fees and potential tax consequences.

A very common problem occurs after separations or divorces — people update their will but forget to update their super nomination.

Robert Patterson: Darryl, what’s been your experience with clients and death benefit nominations?

Darryl Smith: Most clients need education on them. Sometimes, if the family dynamics are straightforward, lawyers advise against binding nominations unless they’re really necessary, because the trustees control the fund and the family may already know the deceased’s wishes.

But in more complex family situations, binding nominations become important.

Robert Patterson: Both of you work with smaller accounting firms who mostly focus on compliance. How do you reassure them that working with you won’t risk losing their clients? Teresa?

Teresa Catalano: We don’t do accounting work — we’re lawyers. We work collaboratively with accountants and other advisors. Our role is limited to asset-protection structuring and estate and succession planning.

If we identify that restructuring is needed, the accountant advises on the tax implications. We’re all part of the client’s trusted advisory circle, not operating in silos.

Robert Patterson: Darryl, what about from your side?

Darryl Smith: Our approach is similar. We bring specialist expertise in tax and structuring — areas many accountants may not feel fully up-to-date on. Because compliance work keeps them busy, they’re often relieved to have support.
We don’t take on compliance work; we focus on adding value in specific areas, and that collaboration works well.

Robert Patterson: And clients are generally comfortable with that arrangement?

Darryl Smith: Yes, once it’s explained. They can see where we add value.

Robert Patterson: Before we wrap up, you mentioned the ATO has been looking at transitions of wealth?

Darryl Smith: Yes. Over the last six to twelve months the ATO has highlighted this area — the passing of wealth and assets — as high risk. They’re particularly focussed on tax and capital gains outcomes when assets move between generations.

Robert Patterson: They don’t miss much, do they?

Well, thank you both. I hope our listeners now have a better understanding of what needs to be considered when someone dies unexpectedly, especially around superannuation and death benefit nominations.

In the next episode we’ll look at selecting an executor and the key moments when you need to review your will.

Thanks again, Darryl and Teresa.

Darryl Smith: Thanks, Rob.

Teresa Catalano: Thanks, Rob and Darryl.