Court makes determination in case involving BDBN

DBA Lawyers special Counsel Bryce Figot explained that this particular case looked at the trustee’s ability to defend a claim relating to the validity of the BDBN and whether the costs could be paid from the deceased’s estate and super fund.

The deceased, Dr Nespolon, died on 26 July 2020 and was survived by his partner Lindy van Camp and their two daughters.

Dr Nespolon’s last will

Dr Nespolon’s last will dated 23 July 2020 appointed Ms van Camp, his brother Mr Walter Nespolon, and Mr James Dickson as his executors.

The assets of the deceased’s estate have an estimated value of $8,145,269 and there are estimated liabilities of $3,554,075, leaving net assets of approximately $4,591,194.

By clause 18 of the will, the deceased gave his household furniture, personal effects, and motor vehicle to Ms van Camp.

Clause 19 of the will gave Ms van Camp the right to reside in a property at Cremorne for the term of her life.

Clause 21 of the will stated that the residue of the deceased’s estate was to be settled on a testamentary trust of which the executors are the trustees and the primary beneficiaries are Ms van Camp and the Nespolon children. Other beneficiaries include any children of the Nespolon children, the deceased’s mother, any trust or entity in which a beneficiary has an interest, and any charity.

In clause 33 of the will, the deceased expressed the following wish:

“Where the primary beneficiary has not attained the preservation age, I express the wish (without limiting the discretion of the trustees) that the trustees preserve the capital of the fund as far as is reasonably possible and to limit the application of capital to the primary beneficiary’s medical and dental treatment, education (including vocational training), reasonable maintenance and welfare.”

The will defined preservation age as 25 years.

Clauses 17 and 39 to 41 of the will contemplate that superannuation or life insurance proceeds may be paid into the deceased’s estate. Clause 17 provides that such proceeds are to be held by the executors on trust to pay (if the executors consider it necessary) any outstanding debts owing by the deceased as at the date of his death and thereafter to form part of the residue of his estate. Any such proceeds which form part of the residue of the estate will form part of the assets held on the terms of the testamentary trust referred to above.

The superannuation fund

Bellahealth was the trustee of the Nespolon Superannuation Fund. The SMSF was established pursuant to a trust deed dated 5 February 2003, that was subsequently amended by a deed dated 3 October 2012.

Pursuant to the trust deed (as amended), the assets of the Fund are vested in the trustee upon trust to apply in the manner set out in the rules of the Fund.

Pursuant to Rule 12.6, a member death benefit of approximately $4,401,422 (including life insurance) was payable by the fund upon the death of the deceased.

Rule 13.5(a) of the rules relevantly provided:

“Any death benefit shall be paid, as the trustee in its absolute discretion decides, by way of purchased annuities, pensions or other periodical payments or lump sum payments, or any combination of such methods of payment, either:

(i)   To such one or more of the nominated beneficiaries (if any) or other dependants of the member and in such proportions as the trustee in its absolute discretion decides; or

(ii)   To the legal personal representative of a Member.”

Rule 13.5(b) of the rules provided:

“If the trustee of the fund holds, at the time of a member’s death, a notice of binding death benefit beneficiary nomination (‘BDBBN notice’), which is effective and valid, the trustee must pay a member’s superannuation death benefit to the nominated beneficiary referred in the BDBBN Notice.”

On the date of his death, the deceased executed a binding death benefits notice form nominating Ms van Camp to receive all of the member’s death benefit payable by the fund in the event of his death. The deceased executed the form in his capacities as both the member of the fund and the sole director of Bellahealth.

Main proceedings

Mr Nespolon and Mr Dickson deny that the BDBN is valid and binding. They contend that that the deceased lacked capacity to understand the nomination at the time that he signed it because he was in the intensive care unit of Royal North Shore Hospital suffering from terminal pancreatic cancer and had been administered morphine and midazolam for pain relief.

Ms van Camp has initiated proceedings (the main proceedings) seeking a declaration from the Court that the nomination is valid and binding and an order that Bellahealth pay to her the deceased’s benefits.

The defendants in the main proceedings, Bellahealth, Mr Nespolon and Mr Dickson contend that the nomination is is liable to be set aside by reason of alleged unconscionable conduct on the part of Ms van Camp in procuring the deceased’s signature on the death benefit nomination form.

One of the matters relied on by the defendants in support of their claim to set aside the nomination on the grounds of unconscionability is that the nomination was improvident because it will result in the deceased’s death benefit not being paid to the deceased’s estate — a consequence of which it is said that there will be insufficient funds in the estate to pay the deceased’s debts and meet what the defendants contend were the deceased’s testamentary objectives.

The defendants plead that the deceased’s testamentary objectives were to provide a residence for Ms van Camp and their daughters and to protect his assets long term for the benefit of their daughters.

In a cross-claim filed in the main proceedings, the defendants seek an order setting aside the nomination or alternatively a declaration that the nomination is void and unenforceable. 

Advice proceedings

Mr Nespolon, Mr Dickson, and Bellahealth commenced proceedings seeking advice under s 63 of the Trustee Act 1925 (NSW) as to:

• Whether they are justified in defending Ms van Camp’s claims in the main proceedings;
• Whether they are justified in advancing the cross-claim in the main proceedings; and
• Whether they are entitled to pay costs incurred in defending Ms van Camp’s claims and in advancing the cross-claim in the main proceedings from the deceased’s estate and from the fund.

The Court concluded that the trustee of the super fund would be justified in defending the claims made by Ms van Camp and the cross-claim as pleaded.

It also determined that it would be justified in paying for the costs in defending those claims and prosecuting the cross-claim out of the assets of the fund.

Commenting on the decision, Mr Figot said this is an interesting case as it examines what trustees or the trustee company should do if they don’t think the purported binding death benefit nomination is valid.

“There have been other cases where trustees have said ‘no, I don’t think this purported BDBN is valid, I’ll pay it in some other fashion' and they’ve just been eviscerated and they’ve had to pay costs personally,” Mr Figot said ahead of a DBA Lawyers webinar on Friday.

“What’s interesting here is that the trustee was on the front foot and acted in a forthright and appropriate fashion and applied to the Court to determine whether they could defend the claims as to whether or not the BDBN was valid.”

Mr Figot warned that trustees that don’t apply for court guidance and then go ahead and defend a claim like this could potentially be in a very weak position — particularly if they lose.

The Court also looked at the question of costs.

“There is no suggestion that the deceased’s brother or Mr Dixon are actually going to get any benefit. It seems to be a case of them just trying to best give effect to the deceased’s wishes,” he said.

The case also highlights the importance of sorting out estate planning ahead of time, Mr Figot stressed.

Mr Figot said Hill v Zuda has provided certainty that binding death benefit nominations can last more than three years where the trust deed allows for this. 

“You can have an indefinite BDBN that will still be valid for many years and you don’t need to be making a nomination at the last minute in hospital when you’ve got all these nasty questions about whether the person actually has capacity or not,” he said.