Another Disputed SMSF Death Benefit Claim

Another Disputed SMSF Death Benefit Claim

The Supreme Court of Victoria has prevented a surviving trustee from exercising discretion and paying the adult daughter (trustee) the deceased benefits instead of the surviving spouse. Echoing the Katz v Grossman case of old, in Marsella v Wareham the daughter was the only other trustee when Mum died. The daughter needed a second trustee so appointed her husband and the trustees then decided to pay all Mum’s $450,000 benefit to the daughter with nothing to her stepfather of 32 years.

The stepfather, Mr Marsella, as the executor of the deceased’s estate, sought a court order to remove the defendants as trustees of the SMSF. The Court ruled to do so as the trustees had failed “to give real and genuine consideration to the interests of the other dependants of the fund”. The Court also set aside the trustee’s decision to pay the entire death benefit to the daughter.

The Court said that while a trustee may be afforded an absolute and unfettered discretion under a trust, such discretion must be exercised in “good faith, upon real and genuine consideration and in accordance with the purposes for which the discretion was conferred”. Ignoring the stepfather’s substantial relationship with the deceased, and his relatively limited financial circumstances, demonstrated a failure of the trustees to consider a relevant consideration.

The major difference between this case and that of Katz v Grossman, where the daughter was successful, is that the plaintiff was the surviving spouse whilst, in the older case, the plaintiff was the adult, financially independent son of the deceased.

A modicum of planning would have achieved the same result but with a fraction of the fees.

The full case can be found here. Marsella v Wareham (No 2) [2019] VSC 65 (Supreme Court of Victoria)