BDBN case a lesson for SMSFs, cautions lawyer

In this particular case involving the Colin Maurice Superannuation Fund, the original trustees of the fund were Colin Maurice, now deceased, and his adult daughter Sonia Perry.

In October 2010, the deceased began living with Jennifer Nicholson, who became his de facto spouse.

On 23 April 2015 the deceased arranged for the fund’s accountants to prepare various documents, presumably with a view to change the trustee from the deceased and his daughter to the deceased and his de facto spouse, explained Mr Figot.

One of these documents, he said, was minutes of a meeting held by the trustees of the fund where it was decided to remove Sonia May Perry as a trustee of the fund and appoint Jennifer Mary Nicholson as a trustee of the fund. The document was signed by the deceased, Ms Perry and Ms Nicholson.

Mr Figot said the fund’s specific trust deed required a binding death nomination to be provided to the trustee of the fund, in order for it to be valid.

“Shortly before undergoing brain surgery for cancer, in January 2017 the deceased signed a BDBN in which he directed the trustees of the fund to pay 100 per cent of his death benefit to Ms Nicholson,” he said. In March 2017 the deceased died.

“Ms Perry submitted that despite the 2015 documentation, she was still a trustee of the fund and that Ms Nicholson was not validly appointed as a trustee,” explained Mr Figot.

“Accordingly, Ms Perry submitted that the BDBN purporting to distribute all of the death benefit to Ms Nicholson was invalid. Presumably, Ms Perry submitted that the BDBN was invalid on the basis that the BDBN had not been provided to the true trustee of the SMSF.”

Ms Perry submitted that the change of trustee power in the fund’s trust deed (i.e. clause 183) had not been complied with, said Mr Figot.

Clause 183 stated that the “trustee will determine who acts as trustee in accordance with this deed and superannuation law for the fund to continue as an SMSF and will take the necessary steps to appoint or remove the persons or body to or from the office of trustee. The trustee may accept the trustee’s resignation in writing for this purpose”.

While the judge noted there were some technical deficiencies in the 2015 documentation, Mr Figot said, ultimately the judge decided to take a “substance over form approach” noting that clause 183 of the deed did not require any particular method of notification of the removal of a trustee, other than that it be in writing.

“The minutes of the meeting, signed by the deceased, the applicant and the respondent on 23 April 2015, properly read, constitute a removal of the applicant as trustee of the fund,” the judge said.

Mr Figot said while the change of trustee documentation was held to be valid in this case, this doesn’t always occur.

“For example, in Moss Super Pty Ltd v Hayne [2008] VSC 158, a change of trustee in the context of an SMSF death benefit dispute was challenged and the judge took a very strict position ultimately striking the purported change of trustee down as invalid due to a failure to comply with form,” he warned.

“Documentation is critically important and could be very carefully scrutinised. Further, the drafting of that documentation is almost certainly the provision of legal services. Severe penalties apply for non-qualified entities that engage in legal practice.”