Relying on trustee discretion to distribute death benefits in the absence of a valid binding death benefit nomination (BDBN) can provide a satisfactory solution as long as the process is performed in a reasonable manner, a superannuation executive has said.
Institute of Financial Professionals Australia senior technical services specialist Stuart Sheary noted situations where SMSF trustees use their discretion to pay out death benefits will generally be acceptable as long as the standard legal precedence established is satisfied.
“The courts apply a threshold, which is the discretion must not be grotesquely unfair, cannot be made in bad faith and must reasonably consider the obligation to pay each of the beneficiaries,” Sheary told attendees of a technical webinar today.
He cited the Re Marsella case as a demonstration of how the legal system implements this type of approach.
In that case, a daughter was the remaining trustee in the SMSF after her mother died. She subsequently appointed her husband as the replacement trustee for the fund and then, using her trustee discretion, paid all of the death benefits to herself. In doing so she completely ignored her stepfather, who had been married to her mother for 32 years, who as a result received no death benefit payment from the SMSF.
The stepfather, Riccardo, took legal action challenging the validity of the outcome.
“The court came back and said the trustees failed to consider Riccardo’s 32-year marriage and financial circumstances. [It meant] the conduct exceeded mere carelessness,” Sheary confirmed.
“[It was deemed the daughter had] acted in bad faith and the distribution was set aside because there was a lack of real and genuine consideration.”
According to Sheary, it was taken into account whether the deceased member would have wanted some of the death benefit paid to her husband of 32 years and who was now in financial difficulty, and it was quite possible she would have.
“It was found [the daughter] didn’t give real or genuine consideration to the distribution. The trustees were removed for the improper exercise of discretion and [for having] a conflict of interest,” he explained.
