[Yet another sound example of why you need an SMSF Will* and a Conflict Permission Declaration** in your estate planning.]
THE UGLY FACTS OF AN UGLY COURT CASE
The February 2019 Victorian Supreme Court case Re Marsella involved a fight over the deceased's SMSF balances.
It was between the deceased's daughter (a remaining trustee of the deceased's SMSF who chose to pay all $490K+ of the deceased's superannuation death benefits to herself), and the deceased's surviving second husband who had accordingly missed out (he was also the Executor of deceased's personal estate).
The surviving second husband had previously made another claim to the court for better provision from the deceased's estate, and in that proceeding the court found that the relationship between the daughter and the deceased's second husband "had broken down irretrievably" and the daughter's evidence "tended to be jaundiced by her negative feelings toward the" deceased's second husband, and ". . . substantial conflict existed between the" daughter and the second husband.
If there is no SMSF Will,* or Binding Death Benefit Nomination, in place guiding a SMSF trustee as to how to pay the death benefits of a deceased member, the SMSF trustee MUST exercise their discretion about how to pay the death benefits in good faith, with real & genuine consideration of the interests of all eligible potential beneficiaries and for a proper purpose.
The Court in Re Marsella found the SMSF trustee did not exercise their discretion with good faith and genuine consideration of the interests of all eligible potential beneficiaries, and removed the SMSF trustee from their role, even though the daughter had an absolute discretion to pay the death benefits to any of the eligible dependants (including to herself). She had to pay the $490K in death benefits back into the fund. OUCH!
Justice McMillan said that the daughter’s actions in making the arbitrary payment of benefits to herself on the facts were carried out with “ignorance of, or insolence toward, her duties” and beyond “mere carelessness” or “honest blundering”. Whilst a SMSF trust deed can afford unfettered discretion to a trustee as to the payment of death benefits, the SMSF trustee MUST exercise their discretion in “good faith, upon real and genuine consideration and in accordance with the purposes for which the discretion was conferred”. The SMSF trustee MUST be seen to act impartially.
Justice McMillan also said, "In light of the size of the fund and complexities surrounding the fund deed and compliance with the SIS Act, specialist advice appears justified . . . ."
The judge found that the daughter failed to properly consider the deceased's estate as a potential beneficiary, and her correspondence to the deceased's surviving second husband was dismissive.
Further, SMSF trustees need to be extra cautious where there has been a break down in relationship between the SMSF trustee and any eligible potential beneficiary.
DON'T DESPAIR . . . .WE HAVE AN EASY SOLUTION FOR YOU!!!
On the above facts if the deceased SMSF member had documents in place to protect her wishes when she became incapacitated or died then the court battle would not likely have occurred as the SMSF trustee would have been bound to follow those documents.
One of the first things I learnt at law school was the "Four Corners Rule" - the meaning of a written document such as a contract, will, or deed is represented by its textual content.
If something is in writing it can be easily followed. If it is not in writing it is then left to discretions exercised by another person and their interpretation of what should be done may not result in what you want with your estate planning.
Proper SMSF succession planning by each member of a SMSF can easily ensure that your SMSF balances are properly managed when you lose legal capacity or die. This entails having up to date Enduring Powers of Attorney in place to protect you if legal capacity is lost, and also an SMSF Will* and Conflict Permission Declaration** in your SMSF estate planning. An SMSF Will is a bespoke drawn non-lapsing binding death benefit nomination specifying where your SMSF balances are to be paid upon your death. With our SMSF Deed it becomes a special rule of the SMSF and MUST be followed by the SMSF trustee. Beyond that a Conflict Permission Declaration specifies that the SMSF member is aware that the SMSF trustee has a conflict of interest and duty in acting as SMSF trustee and also being a beneficiary, and gives permission for this conflict to take place.
DO NOT DESPAIR IF YOU'RE ALARMED BY THE CONTENT OF THIS ARTICLE & YOU HAVE REALISED THAT YOUR ASSETS ARE AT RISK!!!
YOUR SOLUTION IS AT HAND BECAUSE PREVENTION AT LAW IS BETTER THAN CURE. . . . AND MUCH CHEAPER!
CALL US NOW TO BOOK your SuperSession review of your estate and asset protection. . . 1300 886 480
By Shane Ellis - Shane Ellis is the Principal of Shane Ellis Legal Group & SMSF Law/Equity Protect. He is a Senior Consulting Lawyer specialising in SMSF ESTATES & LAW, FAMILY ESTATE PLANNING, ASSET PROTECTION STRUCTURING & BUSINESS STRUCTURES. He is one of few lawyers in Australia to hold SMSF SPECIALIST ADVISOR (SSA) status & ASIC RG 146 SPECIALIST SELF MANAGED SUPERANNUATION FUND ACCREDITATION. He can be contacted on 1300 886 480 or by email: firstname.lastname@example.org
SMSF LAW EQUITY PROTECT
13 May 2019