A recent Victorian Supreme Court ruling has highlighted the need for SMSF trustees to exercise caution when deciding on action around binding death benefit nominations (BDBN).
In particular, the decision handed down by the court has imposed personal liability on the trustees of the fund for both the payment of the superannuation asset balance due to the plaintiffs as well as the legal costs involved in the BDBN dispute.
The case, Wooster v Morris [2013] VSC 594, was about the validity of a BDBN put in place for the Morris Family Superannuation Fund (MFSF), an SMSF, whereby the benefits of Maxwell Morris would revert to his two daughters upon his death. Patricia Morris was the only other member of the fund.
Shortly after the death of the death of Maxwell Morris in February 2010, Patricia Morris appointed Nathan Ashman as a second trustee of the super fund and then later changed the fund structure appointing a corporate trustee, Upper Swan Nominees, with herself as the sole director and shareholder of the company.
Mrs Morris then sought legal advice as to whether or not the MFSF trustees had to honour the BDBN in place and in May 2011 was informed by law firm DLA Piper the BDBN was ineffective as it did not meet all of the requirements of the fund’s trust deed.
Specifically, DLA Piper stated in its letter to Mrs Morris: “The [BDBN] was prepared by the deceased who was one of the trustees of [MFSF]. However, we are instructed that he never delivered it to Patricia (the co-trustee)…”
Upon receiving this advice, Patricia Morris transferred the deceased interests in the SMSF to her with Maxwell Morris’s daughters receiving nothing.
The matter was referred to a special referee who, in March last year, found the BDBN was in fact valid and Mr Morris’s daughters were entitled to be paid his interest of the SMSF, totalling $924,509, and any statutory interest that may have accrued from 30 June 2010 onwards.
In upholding the special referee’s finding, Justice Kate McMillan said: “While she was a trustee of the MFSF, Mrs Morris made the decision that the BDBN was not binding on the MFSF and, through her control of Upper Swan, the decision was made to defend these proceedings. She has controlled the position in favour of her own personal stake and, in doing so, has failed to take proper account of the interests of the other beneficiaries in the MFSF.
“In my view, Mrs Morris’ substantial financial interest in the outcome and the lack of concern for the other beneficiaries in making the decision to defend proceedings mean it is fair that, if Upper Swan is unable to pay all of a costs award made against it, it should fall upon Mrs Morris, in her personal capacity, to meet any shortfall.”
