Sibling rivalry – it’s a classic, rich plot line for countless books and movies, and a dynamic in millions of ordinary families around the globe.

When parents die, sometimes that rivalry fades and other times, it’s the moment that reignites a tension that has simmered for years. When money is thrown into the mix, it’s a recipe for family flambé.

Ervin and Evelin Katz were an ordinary couple living in New South Wales with two children, Linda and Daniel. Their wishes for their estate, when they were gone, were simple: when they died, their estate assets were to be split 50/50 between their children. In Ervin and Evelin’s case, this included their self-managed superannuation fund (SMSF) of which they were the co-trustees during their lives.

When Evelin died in 1998, Ervin made Linda a co-trustee of the SMSF to satisfy the Australian Taxation Office’s rule that an SMSF have at least two co-trustees. When Ervin died five years later, Linda made her husband, Peter Grossman, the co-trustee – putting the SMSF entirely under the couple’s control.

Despite her parents’ wishes that their children receive equal amounts of the inheritance, a wish that Ervin did not waver from during his life, Linda and Peter used their power as co-trustees to pay Linda approximately $1.2 million of her father’s death benefit from the SMSF directly, instead of pooling it into the estate.

The problem was that Ervin had expressed his wishes as a non-binding nomination. A non-binding nomination is precisely that – non-binding; it is a guide for the co-trustees and not a directive. This meant that in the case of Ervin’s SMSF, Linda and her husband had complete discretion as to whether to follow his wishes; share the entitlements with another person (as long as they are a dependant for superannuation purposes, as Daniel is); or pay the entitlement to the estate.

Notwithstanding the ethical or moral judgements that may be made about her actions, in 2005 the Supreme Court of New South Wales found that Linda did technically have the right to pay the death benefit to herself. Ervin had unwittingly left his son Daniel powerless to claim his share of the benefit.

This case – Katz v Grossman – has gone to become something of a classic reference in estate planning law about the consequences of not getting the details in an estate plan right.

With more than one million Australians now keeping their superannuation in around 600,000 SMSFs, Katz v Grossman provides some important pointers for those with superannuation, especially those with SMSFs and children who might not behave quite as they did under their parents’ watchful eye.

The information in this article is provided by Equity Trustees, with thanks and acknowledgement. It is merely a guide and is not meant to be a detailed explanation of the law and does not constitute legal advice. We recommend you consult with a solicitor in relation to your specific circumstances.