While the recent case of Perry v Nicholson, that we mentioned in September’s Acis All Areas, may be the latest instalment in a series of legal rulings, it sadly is by no means the last.
We are seeing a series of challenges to decisions made by advisers and trustees that fall outside the rules set out in their trust deeds. And, frustratingly, it’s often quite simply a case of reading the deed before deciding on a course of action.
Mr Maurice established a self managed superannuation fund in 2009 with himself and his daughter, Ms Perry, as trustees.
In 2015 Mr Maurice’s accountants prepared documents to remove Ms Perry and appoint Mr Maurice’s de facto spouse, Ms Nicholson, as trustee. Those documents were:
Mr Maurice subsequently signed a binding death benefit nomination leaving 100% of his benefits to Ms Nicholson.
After Mr Maurice’s death, Ms Perry challenged her removal as trustee and the validity of Ms Nicholson’s appointment. She also challenged the validity of the BDBN on the basis that the BDBN had not been provided to the correct trustee.
The challenge was based on a failure of the documents mentioned above to comply strictly with the terms of the trust deed.
The provision of the trust deed dealing with the removal and appointment of trustees said:
The trustee will determine who acts as trustee in accordance with this deed and superannuation law for the fund to continue as a self managed superannuation fund and will take the necessary steps to appoint or remove the persons or body to or from the office of trustee. The trustee may accept the trustee’s resignation in writing for this purpose.
Given that the trust deed also required any BDBN to comply with Regulation 6.17A of the Superannuation Industry (Supervision) Regulations, an essential part of making a valid BDBN is to provide it to the trustee. The Court is yet to rule on whether this requirement has been satisfied; however, the trustee’s identity was critical to determining whether the BDBN was correctly provided.
In its judgement, the Court determined that:
Perry v Nicholson is a timely reminder to strictly follow the terms of a trust deed when making changes to the trust structure – whether it be a change of trustee or any other alteration. Had the changes in this case been properly documented in accordance with the deed, the time and considerable expense incurred in litigation could have been avoided.
It is also worth pointing out that ultimately, the court chose to apply a substance over form approach. Had the court followed some earlier cases and used a literal approach the result could have been very different.
The Perry v Nicholson case, plus other legal challenges, broadly offer four major lessons for both advisers and trustees:
Please call us on 1800 773 477 or email Stephen Harvey if you would like further insight or assistance with your trust deeds.