Tuesday, March 8, 2022

Time** (to be challenging a BDBN)

Previous posts have considered various aspects of BDBN.

The case of Wooster v Morris [2013] VSC 594 provides another example of some of the key issues around the enforceability of a BDBN.

In summary:
  1. A husband and wife were the trustees and members of an SMSF;
  2. The husband had two adult daughters from a previous relationship;
  3. The husband had made what was ultimately accepted to be a valid BDBN to his adult daughters, who were also the executors of his will;
  4. The husband's wife, following his death, sought to challenge the BDBN on the basis of a technicality that the trust deed required it to be delivered to her and she claimed that it had not been;
  5. Practically, as the wife was the sole surviving trustee and was able to regulate the appointment of the new trustee (ignoring the claims of the daughters as executors of the will), she paid the entire death benefit to herself; and
  6. After a drawn out (and expensive) litigation, the wife was required to return all funds and also contribute personally to the costs of the litigation.
While there are obviously many consequences that flow from this decision, perhaps the three most important are:
  1. despite many cases to the contrary that require the provisions of a trust instrument to be followed precisely in order to ensure validity, there will be exceptions to that rule;
  2. unless otherwise provided for in the trust instrument, the executors of a deceased member's estate will not automatically have any legal entitlement to a role in the control of an SMSF; and
  3. who has practical control of an SMSF can be critical, regardless of the strict legal position (or in other words, possession can often equate to 9/10ths of the law).
As usual, please contact me if you would like access to any of the content mentioned in this post.

** for the trainspotters, the title today is riffed from the Culture Club song ‘Time (clock of the heart)’.

View hear (sic):