In a recent decision, the Court of Appeal upheld a decision of the Victorian Supreme Court (a summary of which can be found in our earlier article here) and found that the trustees of a self-managed superannuation fund (SMSF) failed to give real and genuine consideration when distributing the deceased's death benefit.
This article outlines:
The facts are neatly set out in our earlier article here.
In short, the deceased was a member and trustee of her SMSF with her daughter.
After the deceased's death, the daughter appointed her husband as joint trustee, and promptly paid the entire death benefit of her mother, to herself.
The deceased's second husband was unhappy with that decision. Yet there was no binding death benefit nomination in place, so the SMSF's trustee was free to exercise its discretion in deciding to whom to pay the death benefit.
This was because the trust deed gave the trustees absolute and unfettered discretion as to who should receive the death benefit, and did not require the trustees to give reasons for any decision they made in determining how the death benefit should be paid.
It was on this basis that the trustees determined to pay the whole death benefit to the deceased's daughter.
However, the Victorian Supreme Court ordered that the trustees' decision should be set aside and the trustees should be removed from office. Now the daughter was unhappy: so she appealed to the Victorian Court of Appeal.
The Victorian Court of Appeal, did not change the decision. It found that:
The Court of Appeal held that even though it may have been the intention of the deceased to distribute her death benefit in the way the trustees had, this is not relevant where trustees have failed to give real and genuine consideration to all relevant matters in making their decision.
This case has significant practical implications for SMSF trustees.
Trustees must ensure they comply with the superannuation trust deed regarding:
Therefore, it is essential that trustees understand and interpret the trust deed correctly and clearly show that they have exercised real and genuine consideration when making a determination as to how to make a distribution.
If they fail to do so, they may not only have their decision set aside, but in particularly egregious cases, they can be removed as trustees.
This case emphasises the risk that your wishes may be overridden if a member does not have a valid death benefit nomination, or similar document (such as a Cleardocs death benefit agreement) in place.
If a member does not wish to leave the distribution of death benefits to the discretion of the trustee or trustees, it is essential that the member makes a valid binding death benefit nomination or agreement which directs the trustees how to distribute funds to beneficiaries.
Furthermore, depending on the provisions of the SMSF's trust deed and the terms of the nomination, nominations may lapse after 3 years: trustees and members should ensure all nominations remain current and binding. You may purchase a death benefit nomination or death benefit agreement through Cleardocs.
For more information, contact Maddocks on (03) 9258 3555 and ask to speak to a member of the Commercial team.
Qualifications: BA, LLB, University of Melbourne
Julia is a Partner in Maddocks Corporate and Private Clients team. Julia has extensive expertise in:
Julia’s clients include high net worth individuals and families and privately held businesses.
Clients value Julia’s empathic, common sense yet technically sound approach to complex legal (and often interpersonal) issues.
She has been recognised as an Accredited Specialist by The Law Institute of Victoria with an accreditation in Wills & Estates Law. She has also been recognised in Doyles Guide for Wills, Estates & Succession Planning Law Recommended – Victoria in 2023.
The legal information and commentary on this site is general only. Documents ordered through Cleardocs affect the user's legal rights and liabilities. To assess their suitability for the user, legal accounting and financial advice must be obtained.