A decision handed down by Judge McMillan on November 1 last in the matter of Wooster v Morris [2013] VSC 594 can be viewed as a watershed in the courts’ approach when dealing with superannuation death benefits.
The first named defendant, a Mrs Morris, was the second wife of Mr Maxwell Morris (the deceased). They had been married for approximately 20 years. Mrs Morris and the deceased were members of the Morris SMSF established in August 2005. They were individual trustees.
The deceased died in February 2010. He executed a Binding Death benefit Nomination (BDN) in March 2008 in respect of his two daughters from his first marriage. The daughters were the plaintiffs in this action.
The second named plaintiff was Mr Nathan Peter Ashman the son of Mrs Morris from her first marriage.
The third named plaintiff was Upper Swan Nominees P/L a company-appointed Trustee of the SMSF subsequent to the retirement of Mrs Morris and her son as individual trustees of the SMSF. Mrs Morris was the sole director and shareholder of the new corporate trustee.
At the time of the deceased’s death, there was approximately $1.4 million held in the SMSF – the deceased’s account of approximately $925,000 with Mrs Morris’s account balance of approximately $450,000.
Mrs Morris claimed she did not know of the existence of the BDN until just prior to her husband’s death. Although she was not happy at all with the provisions of the BDN she did not want to challenge him about the proposed payment to his daughters. Mrs Morris was concerned as to the health and welfare of her husband at that time and did not want to upset him or cause him any angst.
Mrs Morris sought advice from the accountant of the SMSF as to her position. The accountant referred Mrs Morris to solicitors to obtain independent legal advice as to the validity of the BDN of the deceased. The advice was that this was not a valid BDN and accordingly the deceased died without a valid BDN in place.
The provisions of the operative trust deed of the SMSF qualified that the trustee, now the third named defendant, could pay the death benefit in accordance with its discretion. Mrs Morris decided that the death benefit should be paid to her.
The deceased’s daughters instigated proceedings in the Supreme Court of Victoria to enforce the validity of the deceased’s BDN. The court referred the matter to a special referee, a senior barrister, for him to investigate the matter thoroughly and report back to the court with his findings.
The special referee, on all points argued by the plaintiff, found in their favour. He ruled that the BDN was in fact valid. Justice McMillan upheld these findings and made scathing comments as to the conduct of Mrs Morris and her role as the director of the corporate trustee of the SMSF. Costs for the entire matter were awarded against Mrs Morris inclusive of her SMSF account balance.
A thorough examination of the case highlights the following issues in respect of the SMSF jurisdiction:
• If there is any possibility of a dispute between members of an SMSF or it is trustee(s) concerning, but not limited to, the payment of superannuation death benefits, the validity of a BDN, account balances then the fund trustee(s) should apply to the court of applicable jurisdiction for a declaration as to the matter(s) in dispute.
• Confirmation that an SMSF is a trust and the precedents of trust law apply when reviewing the conduct of a trustee(s) and it is crucial that all beneficiaries (members) of an SMSF are accorded the same consideration.
• The court took the view that the entire account balance of the SMSF was available to the court to costs purposes.
• The significance of the role of Binding Death benefit Nominations in respect of the payment of superannuation death benefits and the necessity that they are prepared and executed not only in accordance with the operative trust deed of the fund but also executed and witnessed in accordance with the superannuation laws.
A close examination of this ruling is recommended to all advisers. Remember, superannuation is often a significant asset of individuals and should be treated accordingly.
Note: Mrs Morris died in September 2013 prior to the final judgement being handed down by Justice McMillan.
Ian Glenister is principal of Glenister & Co, Superannuation & Estate Planning Lawyers and a director and co-founder of The SMSF Academy.
A trust is a trust is a trust. Not a surprising decision given the basic rule against self dealing by a trustee in his favour. Nor can a trustee leave a beneficiary in ignorance that his wishes will be disregarded when it is too late for the beneficiary to take other action, such as withdrawing. It is very much like a secret trust case in a will.