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Sladen Snippet – Marsella – is this the end for SMSF trustee death benefit discretionary determinations?

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What is “better” for paying out death benefits in a self managed superannuation fund (SMSF) - a binding death benefit nomination (BDBN) or trustee discretion? As a result of a number of cases, where BDBNs were found to be defective, trustee discretion was becoming a favoured method for some advisors.

Whilst each situation must, of course, be considered in light of its particular circumstances and the wishes of the parties – recent cases have shown the dangers of trustee discretionary determinations for super death benefits.  The decision of Re Marsella; Marsella v Wareham (No 2) [2019] VSC 65 (Marsella) is arguably one of the most concerning cases for SMSF trustees that are left with the discretion to pay death benefits.

In Marsella, in the context of a dispute between the deceased’s daughter (being the surviving SMSF trustee) and the deceased’s second husband, the Victorian Supreme Court found that the decision of the surviving trustee (ie the daughter) to pay all of the deceased’s benefits to herself, was made without real and genuine consideration of the interests of the beneficiaries of the SMSF and was therefore set aside. Further, the daughter and the subsequent co-trustee (being the daughter’s husband) were removed by the Court as trustees of the SMSF. This was notwithstanding that the daughter, as trustee, had an absolute discretion to pay the death benefits to any of the dependants (including herself).

Factors that the Court pointed to in determining that there was no real and genuine consideration included:

  • The daughter did not seek specialist advice in relation to some uncertainties surrounding the SMSF’s trust deed

  • The “inference to be drawn from the evidence is that the [daughter] acted arbitrarily in distributing the fund, with ignorance of, or insolence toward, her duties”

  • The daughter “acted in the context of uncertainty, misapprehensions as to the identity of a beneficiary, her duties as trustee, and her position of conflict”

  • “The ill-informed arbitrariness with which the [daughter] approached her duties also amounts to bad faith.” 

  • “The dismissive tenor of the correspondence from [the daughter’s lawyers]” to the second husband’s lawyers

So, what can be done to potentially prevent another Marsella (assuming the deceased wished to benefit her daughter)?

  • The deceased could have prepared a (valid) BDBN in favour of the daughter

  • A more thorough death benefit determination process could have been run before the decision was made

  • An independent (non-conflicted) person could have been appointed as a co-trustee

  • The deceased could have taken the benefits out before death and gifted the benefits to the daughter

  • The SMSF trust deed could have an express provision that allowed a trustee to pay a death benefit to himself/herself

To discuss this further or for more information please contact:

Phil Broderick
Principal
Sladen Legal
T +61 3 9611 0163  l M +61 419 512 801   
Level 5, 707 Collins Street, Melbourne, 3008, Victoria, Australia
E: pbroderick@sladen.com.au           


Edward Skilton
Special Counsel
Sladen Legal
T +61 3 9611 0145 | M +61 429 077 166
Level 5, 707 Collins Street, Melbourne, 3008, Victoria, Australia
eskilton@sladen.com.au


Ashleigh Eynaud
Associate
Sladen Legal
T +61 3 9611 0129
Level 5, 707 Collins Street, Melbourne, 3008, Victoria, Australia  
E: aeynaud@sladen.com.au

Phil Broderick