A trustee-director of a self-managed superannuation fund (SMSF) has been held jointly and severally liable to pay a superannuation death benefit to her deceased husband’s adult daughters after a court upheld the validity of a binding death benefit nomination (BDBN) in their favour.
As reported in Thomson Reuters Superannuation & Financial Services Bulletin (Issue 1 of 2014), the facts of the case involved a SMSF established by a Mr and Mrs Morris in August 2005. Mr Morris died in February 2010 and probate of his will was granted to his 2 adult daughters from a previous marriage (the plaintiffs). Mr Morris had executed a BDBN in March 2008 in favour of the plaintiffs in respect of all his interests in the SMSF (which totalled $924,509 as of 30 June 2010).
In October 2010, Mrs Morris (the defendant) appointed her son from her first marriage as a co-trustee of the SMSF. A law firm provided advice to the trustees that the BDBN was ineffective for purportedly failing to meet all the requirements of the SMSF’s trust deed. In August 2011, the individual trustees resigned and Upper Swan Nominees Pty Ltd was appointed as a corporate trustee of the SMSF. Upper Swan then accepted the legal advice that the DBDN was defective and resolved that the deceased’s interests in the SMSF be paid to Mrs Morris’ accounts in the SMSF.
The Supreme Court of Victoria held that the BDBN was valid and binding on the respective trustees of the SMSF. As such, the Court held that Upper Swan and Mrs Morris were jointly and severally liable to pay the plaintiffs $323,845 (being the deceased’s interests in the SMSF of $924,509 less $600,664 already paid under an interim order). The Court also ruled that all moneys held by the SMSF (including money in Mrs Morris’ account) were available to meet the payments ordered by the Court.
Furthermore, the Court ordered the SMSF’s corporate trustee and Mrs Morris personally to pay the plaintiffs’ costs of the proceedings. In making a cost order against the trustee-director personally, the Court said this was a situation where the separate corporate identity of the SMSF trustee should not protect the individual director. The Court considered that Mrs Morris had controlled her position as the director of the corporate trustee in favour of her own personal stake and had failed to take proper account of the interests of the other beneficiaries in the SMSF. The Court said that Mrs Morris’ financial stake in defending the BDBN should have put her (and her lawyers) on notice that Upper Swan should have sought advice from a Court before deciding that the BDBN was invalid and then deciding to defend the proceedings.
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