It is all too often that a lack of appropriate estate planning ends up leading to the courts to resolve disputes over family wealth. With superannuation now a significant part of an individual’s wealth pool, this area is likely to lead to greater dispute through the court system. Putting in place the appropriate death benefit nominations to deal with the orderly transfer of a SMSF member’s wealth is a critical ingredient to building a SMSF estate plan.
In this week’s SMSF Podcast Show, Aaron is joined by Ian Glenister, Solicitor and co-founder of The SMSF Academy to discuss the importance of death benefit nominations in light of a recent Victorian Supreme Court decision in the case of Wooster vs. Morris  VSC 594. With a growing number of blended families in existence within Australia, this decision handed down provides some valuable lessons for both trustees and professionals to ensure appropriate attention is given to the structuring of estate planning outcomes and validity of death benefit nominations.
Wooster v Morris  VSC 594
A decision handed down by Judge McMillan on 1 November 2013, in the matter of Wooster v Morris  VSC 594 can be viewed as a watershed to the Courts approach when dealing with superannuation death benefits. It highlights the inordinate amount of problems with blended families and the payment of superannuation death benefits.
Mrs Patricia Morris was the second wife of Mr Maxwell Morris (“the deceased”) and had been married for approximately 20 years. Both were members and individual trustees of the Morris Family Superannuation Fund (“SMSF”) established in August 2005.
Mr Morris died in February 2010. He had executed a Binding Death Benefit Nomination (BDBN”) in March 2008 in respect of his two daughters from his first marriage – both who were the Plaintiffs in this action against Mrs Morris, her son Nathan Ashman (from first marriage) and Upper Swan Nominees Pty Ltd, the appointed corporate trustee after changing from the individual trustee structure. Mrs Morris was appointed as the sole director and shareholder of the corporate trustee.
At the time of the deceased’s death there was approximately $1.4 million held in the SMSF – approximately $925,000 attributable to Mr Morris, with the remaining account balance of approximately $450,000 relating to Mr Morris.
It was claimed by Mrs Morris that she did not know of the existence of the BDBN until just prior to her husband’s death. Although she was not happy at all with the provisions of the BDBN, 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 Mr Morris’ BDBN, where she was advised that it was not a valid BDBN and accordingly the deceased died without a valid nomination in place. The provisions of the operative SMSF Trust Deed stated that the Trustee (Upper Swan Nominees Pty Ltd) could pay the death benefit in accordance with its discretion – it was decided by Mrs Morris to pay the death benefit to herself.
The deceased’s daughters instigated proceedings in the Supreme Court of Victoria to enforce the validity of the deceased’s BDBN. 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 plaintiff, found in favour of the daughters, ruling that the BDBN was in fact valid. Her Honour upheld these findings and was quite scathing in her comments as to the conduct of Mrs Morris and her role as director of the Fund Trustee. Costs for the entire matter were awarded against Mrs Morris, inclusive of her SMSF account balance.
Lessons to learn
The case highlights some important issues for trustees and professionals relevant to advising within the SMSF jurisdiction:
- If there is any possibility of a dispute between members of a SMSF or it is Trustee(s) concerning, but not limited to, the payment of superannuation death benefits, the validity of a BDBN and account balances of the Fund, trustee(s) should apply to the Court of the applicable jurisdiction for a Declaration as to the matter(s) in dispute;
- The trustee has a paramount duty to perform and act in the best interest of all present and future beneficiaries, as outlined in the covenants of the SIS Act to be included within a fund’s governing rules.
- The court took the view that Upper Swan Nominees Pty Ltd and Mr Morris were joint and severally liable for $323,844.50, plus a penalty rate of interest.
- The significance of the role of BDBNs 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.
Read the case, http://www.austlii.edu.au/au/cases/vic/VSC/2013/594.html