Presentation at SPAA NC2011

1. Cooper Recommendation 1. Cooper recommendation 5.14 reads as follows: “ The SIS Act should be amended so that binding death nominations would be invalidated when certain “life events” occur in respect of the members. The current systems used by States and Territories under which testamentary dispositions are invalidated could be used as guidance for creating a single national model.”

2. Case Study - Donovan v Donovon[2009] QSC 26. 2.1 ABC fund, historically always an SMSF (or its predecessor in style) was established by trust deed in June 1978 (the original deed). 2.2 The original deed was amended in June 1990, January 1994 and October 2003. We may assume that by no later than 2003 the fund was an SMSF for all purposes. 2.3 At the point of his death, Charles was a member of the fund and a death benefit became payable from the fund upon his death under the terms of the deed. Charles was the patriarch of his family and was the principal contributor to the fund. Though it was an SMSF, Charles was the most active trustee.

3. Case Study - Continued 2.4 Throughout the existence of this fund Charles had made memoranda of wishes about the distribution of his death benefit and these were always the same: 25% to his surviving (second) wife Isabelle and the balance to two of his children from a prior marriage of Charles. Isabelle and the two children were not close. 2.5 Prior to his death, Charles, as was his want, executed a document in the presence of his solicitors and two witnesses that he called a confidential memorandum.

4. Case Study - Continued 2.6 The confidential memorandum serves a variety of purposes. It recorded the instructions for a new will for Charles, it recorded that a binding nomination was necessary and it recorded that, for present purposes, it was his binding nomination form. The percentages of the death benefit entitlement and the beneficiaries of those wishes remained the same as it had always been. 2.7 By an order of the Court, the confidential memorandum was admitted to probate as representing the last will and testament of Charles. The Court did not decide what the document meant, only that it was a sufficient record of Charles’ testamentary intentions and was in sufficient form to be admitted to probate.

5. Case Study - Continued 2.8 At the time of the death of Charles, the members of the fund were Charles and his wife Isabelle. They were the trustees of the superannuation trust. After the death of Charles, Isabelle as the sole member, appointed a company DEF Pty Ltd to be the trustee (hereinafter called “the trustee”). Isabelle is the sole director and shareholder of the new trustee. 2.9 Charles had been the principal contributor to and principal beneficiary of the fund up until 2004. In 2003, Charles and Isabelle were appointed the trustees of the fund. Charles was nominated as the principal of the fund.

6. Case Study - Continued 2.10 During the lifetime of Charles, Isabelle did not ever see the confidential memorandum 2.11 Throughout his life, Charles kept strict control of the finances of the family business and in particular in his relationship with Isabelle. Generally, Isabelle was informed of any financial matters on a “needs to know” basis.

7. Case Study - Continued 3. Turning to the operative provisions, the relevant provisions in respect of the benefits clause reads as follows:- “Subject to the provisions of this deed, a benefit equal to the members plan credit will become payable in respect of a member if: (a) (b) (c) (d) (e) The member dies.”

8. Case Study - Continued 4. Under the payment of benefits provision the following trust deed terms apply:- “Where any benefit becomes payable to or in respect of a member or former member pursuant to this deed or the member or former member is not alive when the benefit is to be paid:- (i) Where the member has completed and served upon the trustee a binding nomination form, the trustee must pay or apply the benefit to or for the benefit of the persons, and in the proportion set out in that binding nomination bind; or

9. Case Study - Continued (ii) Where the member has not completed a binding nomination form, or has completed a binding nomination form but all or part of it is ineffective or void, the trustee must pay or apply the benefit to or for the benefit of such one or more of:- (A) The nominated dependants; (B) Any other dependants; and (C) The legal person or representatives; as determined by the trustee in his absolute discretion and in the manner and at the times by the instalments and in such proportions between them as the trustee determines in its discretion.” (My underlining)

10. Case Study - Continued 5. The trust deed also contains the following (standard) terms:- “No beneficial interest: Notwithstanding any provision of this deed, no member or any other person entitled to be paid a benefit from the fund will have or require any beneficial or other interest in a specific asset of the fund or the assets of the fund as a whole while such asset or assets remain subject to the provisions of this deed.”

11. Case Study - Continued “ The Court whose task it is to discover [the intention of the settlor] starts by applying the usual canons of construction; words must be given their usual meaning, the clause should be read literally and in accordance with the ordinary rules of grammar…it is then the duty of the Court by the exercise of its judicial knowledge and experience in the relevant matter, by the application of commonsense and a desire to make sense of the settlor’s and parties’ expressed intentions, however obscure and ambiguous the language that may have been used, to give a reasonable meaning to that language if it can do so without doing complete violence to it.”

12. Case Study - Continued 6. In the example of the deed covering the self managed superfund of Charles and Isabelle, under the payment of benefits on death clause, the benefit is a benefit which becomes payable to or in respect of a “member or a former member”. Member is defined in the deed as follows:- “…A person who has been accepted by the trustee as a member of the fund and who has not ceased to be a member and includes a person in receipt of a pension from the fund.” – (presumably a person who is alive) 7. Donovan v Donovon[2009] QSC 26.