Trustees risk penalties for acting on bias

If you are a trustee of a self-managed superannuation fund with a binding death benefit nomination, it’s important you understand your responsibility to remain impartial.

If the fund involves a blended family, a binding death benefit nomination can bind the trustees to give the benefit to children of a first marriage, even when the biological parent has died. As a trustee, you must be careful to ensure your own prejudice about who the beneficiaries should be doesn’t affect your judgement as a trustee.

Such was the situation in the case of Wooster v Morris [2013] VSC 594 (1 November 2013). In this case, the deceased had two daughters from his first marriage and he made a binding death nomination in their favour. His second wife was the surviving trustee. In this case, the daughters of the deceased brought proceedings against the second wife of the deceased, her son and the trustee of the self-managed super fund Upper Swan Nominees Pty Ltd (“Upper Swan”).

The deceased signed a binding death nomination prior to his passing. The second wife and her son sought legal advice on whether the nomination was binding on the trustees of the super fund. After receiving legal advice that it was not binding, the second wife, as sole director and shareholder of Upper Swan, resolved that the trustee pay the death benefit to the second wife as sole director of the trustee company.

The daughters sought declarations that the binding death nomination was valid and binding and eventually the trustee conceded that it was binding and should therefore be paid to the two daughters of the deceased.

However, the defendants submitted that the daughters’ entitlement was “to the extent of the amount now standing in the name of the deceased in the accounts” of the super fund.

The daughters argued that all monies held in the super fund should be declared available for payment in favour of the plaintiff pursuant to any orders. The daughters further claimed interest costs of the litigation. It was submitted that the second wife did not fulfil her role as trustee and was not objective and dispassionate.

It was held that the binding death benefit nomination was valid and binding and that the daughters had an interest in the whole of the trust fund and it was not just limited to the deceased’s part of the fund. The second wife and the trustee were further held jointly and severally liable for costs and interest.

“The paramount duty of a trustee is to exercise [its] powers in the best interests of the present and future beneficiaries of the trust, holding the scales of impartially between different classes of beneficiaries.”

This case highlights the huge responsibility held by trustees of a self-managed super fund to act impartially. The Judge stated that: “the paramount duty of a trustee is to exercise [its] powers in the best interests of the present and future beneficiaries of the trust, holding the scales of impartially between different classes of beneficiaries”.

The case clearly illustrates the dangers of a trustee ignoring their responsibilities. If you are a trustee, ensure that you do not put your interests before the interests of the other beneficiaries in the super fund, otherwise you could be liable to a costs order in your personal capacity, similar to the wife in this case.

Blended families can be more complicated as new alliances in the family may cause bitterness and animosity, which can lead to time-consuming and expensive litigation between beneficiaries.

Streeterlaw has the expertise to sort out the details of self-managed super funds and handle any complications arising from challenges to a will, trust or super fund. Call us today to discuss your situation on 8197 0105 or email us at advice@streeterlaw.com.au

Written by Mark Streeter

The Director of Streeterlaw, Mark has been practicing Law since 1994. He has attained his Masters of Law in 1999 and in 2006 was awarded his Specialist Accreditation in Commercial Litigation. Mark is a member of ARITA, a graduate of the AICD and a member of AICM. A member of STEP, Mark enjoys working in the area of Wills and Estates. In 2020 Mark is the Chair of STEP NSW.

Call us on 02 8197 0105 to book an appointment with Mark Streeter!