Hopefully your Binding Death Benefit Nomination (BDBN) is robust and would survive any sort of challenge.

The outcome of a recent Victorian Supreme Court case provides an excellent example of how effective these documents can be, but also how your estate can be destroyed by warring heirs and successors.

Some background facts

Maxwell Morris died in late February 2010. At the time of his death, Morris was married to Patricia Morris, his second wife. They were the only trustees and members of the Morris Family Superannuation Fund, a self managed super fund, which had been established in August 2005. There were no other members or trustees of this fund.

At 30 June 2010, the fund had assets of over $1.3 million. Patricia’s interest in these assets was about $450,000. The balance belonged to Mr Morris.

Since December 2005, they had both received super pensions.

In March 2008, Mr Morris completed a BDBN with all his super benefits to be paid to Susan Wooster and Kerry Smoel. Kerry was his first wife and Susan a daughter of that marriage.

In October 2010, Patricia Morris appointed Nathan Ashman to be co-trustee of the SMSF. (As the fund had individual trustees, at the date of death Mrs Morris was the only trustee and needed to appoint another person to act as co-trustee to remain as an SMSF. The super legislation gives you up to six months to appoint a replacement trustee but Patricia seems to have taken a bit longer to fix this problem.)

Between September 2010 and April 2011, Mrs Morris and the fund’s newly appointed accountant prepared the fund’s 2009 and 2010 financial year accounts and statutory returns.

Legal advice

In May 2011, the super fund’s trustees received advice, which said that Maxwell’s BDBN was invalid because it didn’t meet all the requirements of the fund’s trust deed. The trustee was also told that it would be better if the super fund’s trustee was a corporation.

Not long after, Patricia and Nathan Ashman resigned as trustees and Upper Swan Pty Ltd was appointed as the fund’s trustee. The sole director and shareholder of this company was Mrs Morris.

At this point, Upper Swan formally decided Maxwell’s BDBN wasn’t valid and therefore not binding on the trustee and transferred and divided his benefits between accounts held in Patricia’s name.

In late June 2012, Maxwell’s first wife and daughter commenced Victorian Supreme Court proceedings. They wanted a formal determination as to the validity of the BDBN and if it was valid, how much they were entitled to.

Special referee’s determination

In September 2012, the parties agreed that a court-appointed Special Referee would determine the validity of the BDBN and how much should be paid to those nominated on it if valid. Later the court asked the Special Referee to award costs for the court action and his time.

In early March 2013, the Special Referee said the BDBN was valid and Maxwell’s first wife and daughter from that marriage were entitled to his account balance at the time of death (about $925,000) plus interest for late payment of the benefit.

The court case

The Supreme Court accepted the Special Referee’s report and told the trustee to pay just over $600,000 of Maxwell’s super benefit by 16 April 2013.

Upper Swan, now the SMSF’s trustee, didn’t pay this sum until early June.

In November 2013, the court decided that the remainder of the death benefit, plus interest for late payment, could be paid out of the super fund’s assets (even if this meant that Patricia’s own super account would be reduced). The Court ordered that this amount had to be paid by 14 November.

It also said that all costs for the case, including the costs of employing the Special Referee, would be paid by the super fund’s trustee and Mrs Morris. In other words, Mrs Morris lost a substantial sum of money. No orders were made against Mr Ashman.

Key lessons

Almost four years after Mr Morris died, this matter is now almost closed. This is an extraordinarily long time. How many families could survive financially for this amount of time?

The case shows that SMSF BDBNs can bind a surviving trustee and also clearly shows how your wishes can be frustrated by that trustee, if they don’t like the decision you made on that nomination. The case of blended families didn’t help the situation.

Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.