Pensions, Superannuation

Resolutions or agreements on death not binding

Pension resolutions agreements

Instructions for the treatment of an existing pension upon a member’s death may not be legally binding if made via resolutions or contractual agreements.

Advisers and their SMSF clients should be aware any resolutions or contractual agreements as to the treatment of pension upon the death of a member are not legally binding and will not have the effect of influencing the discretion of the surviving fund trustees, a specialist lawyer has said.

According to DBA Lawyers director Daniel Butler, trust law dictates, and has been supported by case law, that a trustee’s discretion cannot be fettered in advance and if a trustee makes a resolution to that effect, it will be unenforceable in terms of the pension.

“So if you did your [reversionary instructions] by resolution, it is not enforceable. It is not a legally binding document on the trustee and the trustee can say ‘I don’t want to abide by that’,” Butler told delegates at the recent Self-managed Independent Superannuation Funds Association 2019 SMSF Forum in Melbourne.

Further, he pointed out if the trustee enters into an agreement with regard to the treatment of a pension upon a member’s death, the agreement will not be enforced.

“So even with a contract you cannot bind a trustee. The trustee [can] say ‘I don’t care, I’m going to renege on that deal’. A trustee is quite entitled to do that,” he said.

However, he acknowledged contractual agreements would give surviving members some protection and an avenue of recourse with regard to SMSF management, however, it just would not be effective in influencing trustee discretion upon a member’s death.

“You might have an action in damages, but you don’t have an action in clogging or fettering the trustee as such,” he noted.

He said these are the types of legal parameters leading him to favour binding death benefit nominations over reversionary pensions upon the passing of a member in pension phase.

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