Death benefit dispute highlights role of fund guardians
A recent SMSF death benefit dispute involving a blended family demonstrates how appointing a fund guardian can be a useful way of safeguarding against rogue attorneys, says a technical expert.
As previously reported by SMSF Adviser, the case of Dawson v Dawson [2019] NSWSC 826 was a dispute over who had control of the fund and the payment of death benefits totalling $1.4 million.
The plaintiff issued legal proceedings against his father’s former spouse, Estelle Dawson, and the executor in order to challenge their attempted appointment as trustees of the fund.
Prior to the death of his father, Peter Dawson, the plaintiff was appointed as trustee of the fund in his father’s place. At the time, the plaintiff was his father’s financial manager and guardian and held his power of attorney.
While the defendants agreed that the plaintiff was validly appointed as a trustee, they contended that his appointment ended on the death of Peter Dawson and that the appointment of the executor as trustee was valid and necessary due to the trustee requirements for an SMSF with two members under the SIS Act.
After examining the trust deed, the court determined that the plaintiff was appointed as trustee of the fund in his personal capacity, not as attorney or agent for Peter Dawson, and that his appointment did not cease upon Peter Dawson’s death when the power of attorney terminated.
Smarter SMSF chief executive Aaron Dunn said the Dawson case is a salient reminder of the way courts will approach disputes relating to SMSFs and the importance of the fund’s trust deed and associated documentation.
“The Dawson case has again shown that a court will carefully review the provisions of the trust deed relating to the appointment of trustees as a matter of strict trust law,” Mr Dunn explained in an online article.
“Consistent with the case of Ioppolo v Conti [2015] WASCA 45, the Dawson case has found that the provisions in section 17A of the SIS Act relating to the appointment of an executor as replacement trustee on the death of a member is permissive and not mandatory.”
As with cases such as Re Narumon, Cantor Management and Perry v Nicholson, Mr Dunn said this case has shown that the court will carefully review the SMSF documentary trail and the validity of previous deed upgrades, trustee resolutions and how they impact on the validity of any current death benefit nomination.
“Practically, what this means is that if an attorney appointed by an enduring power of attorney is appointed as replacement trustee during the period of incapacity of a member, and the member later dies, unless the trust deed of the fund specifically terminates the attorney’s role as trustee, they will remain in office as trustee for the purposes of the payment of the deceased member’s death benefits,” he explained.
“In circumstances where there is no valid BDBN, they will be able to exercise a discretion, made in good faith and for a proper purpose, to pay out the death benefits to any person who qualifies as a dependant for SIS purposes, which can include themselves.”
The Dawson case, he said, also shows how important it is for clients to ensure that the person who is to benefit most from their super on death should be able to have effective control of the fund following the death of that member.
“While Peter Dawson had not made a binding death benefit nomination, advisers and fund members should also be aware that cases have previously shown just how easy it is for a BDBN to become invalid as a result of a simple clerical error or not following procedure,” he noted.
Mr Dunn said it also highlights how the appointment of a fund guardian can help safeguard against a rogue attorney exercising control of the fund on death.
Upon the death of the member, the guardian will police the payment of the member’s death benefits to their intended recipients and will have the casting vote in relation to those payments and any matters pertaining to their payment, he explained.
The Dawson case also shows how many clients assume that their executor will control superannuation death benefits as part of the administration of their estate, he said.
“This case shows how these intentions can fail, particularly if the attorney and executor are different persons,” he said.
The case is also an important reminder that individuals should review their estate planning following a separation or divorce, he added.
Miranda Brownlee
Miranda Brownlee is the deputy editor of SMSF Adviser, which is the leading source of news, strategy and educational content for professionals working in the SMSF sector.
Since joining the team in 2014, Miranda has been responsible for breaking some of the biggest superannuation stories in Australia, and has reported extensively on technical strategy and legislative updates.
Miranda also has broad business and financial services reporting experience, having written for titles including Investor Daily, ifa and Accountants Daily.
