When Peter Dawson died in 2015 he left an SMSF with a balance of $1.4 million, an ex-wife who was also a member of the fund and children from other marriages. He did not make a binding death benefit nomination. What followed, much of which was played out in court, showed what a mistake that was.
The Dawson Superannuation Fund, a self-managed fund, was established in 2005 by husband and wife Peter and Estelle Dawson. They were the only members and trustees of the fund.
Both of them had children from previous relationships.
Peter’s son Tony was his father’s financial manager and guardian and held his power of attorney.
Prior to Peter’s death, Tony was appointed a trustee of the SMSF in Peter’s place.
The deed appointing Tony was validly executed in accordance with the terms of the fund trust deed.
Peter made a will nominating Estelle’s son-in-law George Holland as his executor. He left most of his estate to Estelle.
Peter died in 2015, leaving a death benefit of $1.4 million payable from the fund. Peter did not complete a binding nomination, so under the trust deed the trustee had discretion as to who was to receive payment of the death benefit.
George obtained probate for Peter’s estate and he and Estelle then executed a deed, without Tony’s agreement, which nominated George as a trustee of the fund in place of Tony.
They argued that Tony’s position as trustee was linked to him being Peter’s attorney and that his appointment ended on Peter’s death.
They also claimed it was necessary for George, as Peter’s executor, to become a trustee in order for the fund to remain compliant.
Tony commenced proceedings in the Supreme Court of New South Wales, seeking a declaration that he was still a trustee of the fund and that the deed appointing George was invalid.
The court ruled that Tony remained a trustee of the fund after Peter death and George’s purported appointment was not valid under the terms of the fund deed.
It ruled that the question of whether a trustee has been appointed or removed validly depends on the terms of the trust deed. In the circumstances, George’s appointment as a replacement trustee was not valid as it had not complied with the terms of the trusts deed and instead relied on an automatic removal of Tony by reason of his financial attorney ceasing.
It also ruled that a deceased member continues to be a “member” of an SMSF until their death benefit has been paid out.
Luke Haley, a partner at the law firm Moores says the case highlights that following the trust deed is crucial whenever dealing with control of an SMSF.
Haley says: “Failing to validly appoint and remove trustees in accordance with the trust deed will make the appointments invalid and the court will not intervene to rectify a non-compliant fund.”
Haley also says binding death benefit nominations remain a crucial estate planning tool. “The issue in this case would probably never have arisen if the trustee did not have discretion for payment of the death benefit.”