Critical lessons for SMSF succession planning
The recent court decision of Perry v Nicholson  QSC 163 contains very important lessons for SMSFs in regards to succession planning.
The Colin Maurice Superannuation Fund was established on 17 September 2009. The original trustees were Colin Maurice (‘Deceased’) and his adult daughter Sonia Perry, with the Deceased as the sole member of the fund.
In October 2010, the Deceased began living with Jennifer Nicholson, with Ms Nicholson becoming the Deceased’s de facto spouse.
Although not expressly stated, the facts seem to suggest that:
- The fund is an SMSF.
- The Deceased’s de facto spouse (ie, Ms Nicholson) was not the biological mother of the Deceased adult daughter (ie, Ms Perry).
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.
One document was minutes of a meeting of the trustees of the Fund, which were in the following terms:
The trustees of the fund refer to the deed of the fund dated 17 September 2009.
It is decided to remove Sonia May Perry as a trustee of the fund.
It is decided to appoint Jennifer Mary Nicholson as a trustee of the fund.
[Signed by the Deceased]
[Signed by Ms Perry]
[Signed by Ms Nicholson]
Another document was a confirmation of resignation as trustee, which read:
I confirm my resignation as a trustee of the Colin Maurice Superannuation Fund.
[Signed by Ms Perry]
Another document was a consent to appointment as trustee, which read:
I consent to being appointed as a trustee of the Colin Maurice Superannuation Fund.
[Signed by Ms Nicholson]
The judge writes in the judgement:
The trust deed … provides that “binding death benefit notice means a notice given by a member or beneficiary to the trustee in accordance with Regulation 6.17A of the Superannuation Industry (Supervision) Regulations and with this deed”.
In other words, it appears the fund’s specific trust deed required a binding death benefit nomination (‘BDBN’) to be provided to the trustee of the fund in order 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.
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. 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 (ie, clause 183) had not been complied with. Clause 183 provides:
The trustee will determine who acts as trustee in accordance with this deed and superannuation law for the fund to continue as a self managed superannuation fund 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.
* The appointment or removal of a trustee must be in writing and must immediately be advised to any other trustee.
* Where the trustee is unable or unwilling to determine who will act as trustee then the majority of members of the fund will determine who will act as trustee. If there are no members in the fund, the former members of the fund (or their legal personal representatives) will determine who acts as trustee of the fund.
There seems to be some technical deficiencies in the 2015 documentation. For example, the judge notes that:
Whilst it may well have been the intention of the parties that the resignation be accepted by the Trustees, the resolution recorded in the Minutes is consistent with the trustees not accepting that resignation.
Whilst the respondent contends that reliance can properly to be made on the applicant’s resignation in writing as a trustee of the Fund, there is no acceptance of that resignation in any of the documentation signed by the trustees at that time. I do not accept that acceptance of that resignation is evidenced by delivery of the signed resignation to the accountants. That appears to be the view of the accountants as they required the applicant to sign the change of trustee deed prepared by them in 2017.
The minutes dated 23 April 2015 record that the meeting decided to remove the applicant as a trustee. Under clause 183 of the deed, any removal of a trustee must be in writing. None of the documents signed on 23 April 2015 are in terms of a formal notification to the applicant of her removal as trustee. There is also no document purporting to immediately advise the other trustee of the removal of the applicant as trustee. Both are requirements of clause 183 of the trust deed.
However, ultimately, the judge appears to have taken a ‘substance over form’ approach, holding:
[Despite the deficiencies to referred to,] clause 183 of the deed does not require any particular method of notification of the removal of a trustee, other than that it be in writing. The minutes of 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. That removal is in writing in that it is recorded in those minutes. As the minutes are signed by the deceased, the minutes also record that the deceased as the other trustee was advised immediately.
In other words, the 2015 change of trustee was held to be valid.
The BDBN issue was not ultimately ruled on, which the judge stating in the second last paragraph that:
It is not in dispute that the deceased completed and signed a binding death benefit nomination. However, there remains in issue whether that notice was given to the trustees of the Fund. I shall hear the parties further on this issue.
Firstly, the drafting of the change of trustee documentation really matters. Although ultimately the change of trustee documentation was held to be valid in this case, that’s not always so. For example, in Moss Super Pty Ltd v Hayne  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. There is a practice of non-lawyers (e.g., accountants) either directly drafting change of trustee documentation themselves or arranging for change of trustee documentation to be generated by websites. However, that documentation is critically important and could be very carefully scrutinised. Further, the drafting of that documentation is almost certainly the provision of legal services (ie, engaging in legal practice). Severe penalties apply for non-qualified entities that engage in legal practice. These penalties range for imprisonment and fines, to not being covered by an accountant’s PI insurance.
Secondly, one must question the need to have SMSF governing rules requiring that a BDBN must be provided to trustees in order to be valid. It may be prudent to expressly exclude any such requirement from the SMSF governing rules. We acknowledge that there is a need for a such a requirement in large APRA funds, where from a pure administrative point of view the trustee might not otherwise know the BDBN exists. However, we feel that for SMSFs — where there is almost always a close familial relationship — a requirement in the governing rules that a BDBN must be provided to the trustee could cause all sorts of issues such as difficulties where:
- a member/trustee does not want to show the BDBN to their co-trustee (this is often the case where the BDBN favours someone other than the co-trustee);
- there are evidentiary questions as to whether the BDBN was provided to the trustees; and
- the BDBN was provided to one or some but not all of the trustees.
By Bryce Figot, special counsel & Daniel Butler, director, DBA Lawyers