Tuesday, April 4, 2023

Trustee duties and payment of super death benefits: you must work on it**

Last week’s post explored the original decision in Re Marsella; Marsella v Wareham (No.2) [2019] VSC 65.

The case provided another example of the types issues that need to be considered by trustees of self managed superannuation funds before making a decision on how to distribute a member’s death benefits.

The original decision was upheld, essentially without any exceptions in the appeal case of Caroline Elizabeth Wareham and Martin Wareham (as trustees of the Swanson Superannuation Fund) v Riccardo Giacomo Marsella (both personally and as executor of the estate of Helen Freeth Marsella (also known as Helen Freeth Swanson)) [2020] VSCA 92.

The central arguments by the trustees on appeal revolved around their belief that they had exercised their discretion validly and therefore the payment of 100% of the death benefit to one of the trustees personally should be reinstated. As mentioned in last week's post, in essence this result would have been analogous to the outcome in the similar earlier case of Katz.

In rejecting the argument, the appeal court confirmed:
  1. The trustees (through their lawyers) were on record as stating their belief that the deceased's surviving husband (who she had been married to for over 30 years) was ‘(not a) Beneficiary of the Fund’ - a conclusion that was plainly wrong.
  2. There was also evidence to suggest the trustees believed they owed ‘no duty to the estate or other beneficiaries’ - again an erroneous assumption.
  3. Furthermore the evidence supported a conclusion that the trustees had failed to look at the trust deed for the fund - a further breach of their duties.
  4. Ultimately therefore the court concluded that if the trustees did not exercise their discretion upon real and genuine consideration, there was no proper exercise of the discretion. The fact that the discretion could have been properly exercised in the same way (ie to pay the benefit entirely to one of the trustees, as was the case in Katz) could not alter that position.
  5. The court also confirmed the importance of the decision in the case of Karger v Paul (featured in other posts by View), and the fact that there are three obligations on a trustee exercising a discretion, namely:
    • to do so in good faith;
    • upon a real and genuine consideration (a requirement that is so obvious that it is often not mentioned); and
    • in accordance with the purpose for which the discretion was conferred.
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** For the trainspotters, the title of today's post is riffed from the Alicia Keys song ‘Work on it’.

Listen here: