Consumer trust isn’t something to be taken for granted, but reports from the UK, US and here at home are all pointing towards an uplift in trust levels around financial advice, which can only be a welcome development.
There are significant tailwinds behind the financial advice industry at the moment, but some major obstacles are still preventing advice practices from taking advantage of surging demand according to a new study from CFS.
Death benefit litigation puts SMSF trustee role in focus
The legal landscape for self-managed superannuation funds is key to SMSF members’ ability to make the most out of their investments and plan for retirement, but individual investors often lack the time and resources to stay abreast of case law that affects their rights and obligations. Hayley Mitchell, partner at Brisbane law firm Cooper Grace Ward, says recent litigation, particularly involving estate planning, could have deep ramifications for SMSF management.
Mitchell – who will be leading a February 23 session at the SMSF Association’s National Conference 2023 in Melbourne addressing new developments in estate and superannuation litigation and how it affects SMSFs – spoke with The Inside Investor ahead of the conference about the expanding litigation picture and its practical implications for SMSFs.
“There have been a couple of really important cases over the last 12 months that foreshadow where we may see an increase in disputes and litigation over superannuation death benefits,” Mitchell said. “The trends in litigation demonstrate that the issues dealing with death benefits, and particularly the role of trustee, are complex.”
She pointed to Owies v JJE Nominees Pty Ltd [2022] VSCA 142, a case in which the Victorian Court of Appeal ordered the removal of a trustee from a family discretionary trust after finding that while the deed of trust gave the trustee absolute discretion to distribute trust income, the trustee still had an obligation to take positive steps to inform itself about the beneficiaries’ needs. Mitchell said the ruling “highlights the importance of trustees undertaking the proper process if they are exercising a discretion to pay a death benefit.
“Although this case concerned a family discretionary trust, the principles are directly applicable to SMSFs,” she added.
Another important case, before the Supreme Court of New South Wales, “has flagged that the court may be required to consider and apply a test for capacity to make a binding death benefit nomination [BDBN],” Mitchell said.
Nespolon v van Camp [2022] NSWSC 1190 involves a BDBN executed on the deceased’s date of death and examined whether the trustee was entitled to defend a claim relating to the BDBN’s validity and pay costs from the deceased’s estate and super fund.
“The substantive issue has not yet been heard or determined, so it is a ‘watch this space’ for the time being,” Mitchell said. “I suspect that if the court does decide the issue, it will apply a test similar to the test for capacity to make a will.”
There are also several cases decided since the Supreme Court of Queensland’s ruling in Re Narumon Pty Ltd [2018] QSC 185 “that provide differing views on whether an attorney under an enduring power of attorney has the power to make a binding death benefit nomination,” she added.
The role of the SMSF trustee is a clear theme in the current litigation landscape, Mitchell said, citing two rulings, in Re Owies Family Trust [2020] VSC 716 and Re Marsella; Marsella v Wareham [2019] VSC 65, as demonstrating trustees are not necessarily protected from scrutiny when exercising discretion.
“[This] means that trustees need to be seeking specialist advice about their role, and that advisers need to be aware a trustee’s exercise of discretion is nuanced and if not carried out correctly may lead to negative consequences for the trustee,” she said.
“Issues with incapacity of our clients will only become more common with an aging population,” she added. “Advisers need to understand the impact a client’s lack of capacity will have on their adviser-client relationship.”
The SMSF Association is hosting this year’s National Conference at the Melbourne Convention and Exhibition Centre from February 22-24, with a “hivemind” theme promoting a “collaborative approach to information sharing, with participants coming together as a community to contribute as much as they gain, in order to collectively strengthen their knowledge and expertise.”
