Court dismisses appeal of SMSF death benefits decision
A Victorian court’s dismissal of an appeal on a decision made on SMSF death benefits has put into focus the high standards that trustees are held to when performing their duties in managing their funds, notes a law firm.
The case of Re Marsella; Marsella v Wareham (No 2)  VSC 65 involved the estate of Helen Marsella, who, prior to her death on 27 April 2016, had managed her retirements funds via an SMSF, the Swanston Superannuation Fund.
The fund was established in 2003 by Mrs Marsella and her daughter from a previous marriage, Caroline Wareham.
In February 2019, the Supreme Court of Victoria decided to remove Mrs Wareham and her husband Martin Wareham as trustees of the fund after determining that they had not considered the interests of the dependants of the fund when distributing benefits.
Mr and Mrs Wareham subsequently appealed on 10 separate grounds, of which one of those grounds included items such as that “[t]he learned primary judge erred in setting aside the exercise of discretion by the applicants as trustees of the Swanson Superannuation Fund… and in concluding that the applicants exercised that discretion without real and genuine consideration of the interests of the dependants of the fund”.
The Court of Appeal dismissed Mr and Mrs Wareham’s appeal.
Speaking to SMSF Adviser, DBA Lawyers special counsel Bryce Figot and director Daniel Butler said the Court of Appeal’s judgment reinforces many of the lessons from the original Supreme Court judgment.
“In particular, we note that trustees are subject to very strict duties. These duties include the duty to properly inform themselves,” they said.
“Further, trustees must take great care to ensure they exercise discretions in good faith, upon real and genuine consideration, and for the purposes for which the discretion was conferred.
“If the trustees fail to do so, a court might reverse key decisions the trustees have made and remove the trustees.”
The facts leading to the original decision
Helen Marsella had two teenaged children in her first marriage, of which one was Caroline Wareham. In 1981, Mrs Marsella’s first husband, Mr Swanson, died in a motor vehicle accident.
In 1984, Mrs Marsella re-married to Riccardo Marsella.
In 2003, Mrs Marsella established an SMSF of which she was the sole member. The trustees of her fund were herself and Mrs Wareham.
This structure continued until Mrs Marsella’s death on 27 April 2016. Upon her death, the death benefit payable from the fund was $450,416.
Mrs Marsella did not leave a binding death benefit nomination (BDBN) upon death, but did leave a will appointing Mr Marsella as executor.
The decision noted strained relations between Mr Marsella and Mrs Wareham, of which there was evidence of a physical altercation on 9 July 2016 in connection with a disputed clock which Mrs Wareham removed from the marital home that Mr Marsella and Mrs Marsella had lived in together during their 32 years of marriage.
Despite the fact that Mr Marsella was his late wife’s executor, he did not control the SMSF following her death. Rather, it appears that under the particular SMSF deed, Mrs Wareham was left in control of the fund.
On 17 April 2017, Mrs Wareham as the sole trustee determined to distribute all superannuation death benefits to herself. On the same day, Mrs Wareham also appointed her husband Martin Wareham as a co-trustee and then the two of them made the same determination again.
On 24 April 2017, Mr Marsella became aware that assets of the SMSF were being sold. His solicitors wrote to the solicitors acting for Mrs Wareham seeking an explanation. On that same day, Mrs Wareham’s solicitors replied, stating:
Your client is neither a Member, Trustee or Beneficiary of the Fund, and as such our client is not required to consult with him on any matter relating to the administration of the Fund, nor to provide any undertakings or accounting as requested in your letter of today’s date.
On 4 May 2017, Mrs Wareham’s solicitors sent another letter stating (among other things) that no conflict of interest arose and that Mrs Wareham was permitted to exercise her discretion in favour of any eligible object including herself. The letter also stated that Mrs Wareham owed “no duty to the estate or other beneficiaries”.
Mr Marsella commenced a proceeding seeking orders removing Mr and Mrs Wareham as trustees of the fund and appointing a substitute trustee. He also sought an injunction restraining distribution of the fund and an order requiring the applicants to repay any sum already distributed.
Mr Marsella was ultimately successful in doing so, where the trial judge held:
The ill-informed arbitrariness with which [Mrs Wareham] approached her duties also amounts to bad faith. The dismissive tenor of the correspondence from [Mrs Wareham’s solicitor], the willingness to proceed with the appointment and distribution in the context of uncertainties and significant conflict and the lack of specialist advice… all support the conclusions that her conduct was beyond “mere carelessness” or “honest blundering”.
The trial judge reversed the decision from Mr and Mrs Wareham to pay the superannuation death benefits to themselves, and removed them as trustees.
Adrian Flores is the deputy editor of SMSF Adviser. Before that, he was the features editor for ifa (Independent Financial Adviser), InvestorDaily, Risk Adviser, Fintech Business and Adviser Innovation.
You can email Adrian at [email protected].