Marsella puts trustees on notice around good faith duty

But even though the case was about the trustee exercising discretion for the payment of a death benefit, Mr Hay-Bartlem said there are other discretions that a trustee commonly exercises where the same principles will apply.

He pointed to other trustee decisions where the good faith duty applies, including:

• rolling members out
• allocating income and losses
• admitting a new member
• making investment decisions
• allocating assets to specific members
• paying benefits as lump sums, pensions or transferring assets
• providing information to members
• implementing Family Law superannuation splits

Mr Hay-Bartlem said the good faith duty is rarely considered by an SMSF trustee when making these types of decisions due to it not being an issue for SMSFs in many cases as the interests of the members are usually closely aligned.

However, Mr Hay-Bartlem noted he’s increasingly seeing circumstances where the interests of different members are no longer aligned, such as warring business partners, unhappy families or divorcing couples.

“In these situations, it is imperative that the best interest duty is properly understood and applied,” he said.

“Where the decisions by the SMSF trustees have not complied with their good faith duties, the principles in the Marsella case can be used to challenge what the SMSF trustees have done, and potentially result in their removal.”