Wooster v Morris

The case of Wooster v Morris concerned Mr and Mrs Morris who were individual trustees of an SMSF.  Mr Morris made a binding death benefit nomination (BDBN) nominating his two adult daughters from a previous marriage.  On Mr Morris’ death, his widow took control of the fund and appointed her son from a previous marriage as the co-trustee.  The widow and her son then sought advice from a law firm about the validity of Mr Morris’ BDBN.  On instructions that the BDBN was never delivered by Mr Morris to the widow as the then co-trustee (as required by the deed governing the fund), the firm advised that the nomination was ineffective.  The trustee of the fund was later changed to a company and the widow as the sole director of the corporate trustee resolved to pay Mr Morris’ death benefits to herself.  Mr Morris’ two daughters commenced legal proceedings seeking declarations that the nomination was valid and binding.

The matter was referred to a Special Referee with the consent of the parties.  The Referee found that the BDBN was valid (unfortunately the reasons why it was found to be valid are not mentioned in the judgement) and that the widow had already formed a view on the validity of the BDBN prior to receiving legal advice.  Amongst other things, the Referee recommended that the widow should pay the whole of the daughters’ costs of legal proceedings.  The Court adopted the Referee’s report and held that the BDBN was valid and binding on the then current trustees (the widow and her son) and thereafter on the current corporate trustee.

Consequently, the Court held that the corporate trustee and the widow personally, were jointly and severally liable to pay the daughters Mr Morris’ death benefits plus statutory interest plus the daughters’ costs of (and incidental to) the proceedings.

Lessons to be learned

This case demonstrates that:

  • the separate corporate identity of the current trustee did not protect Mrs Morris from personal liability;
  • while trustees/trustee directors will generally have a right of indemnity from the trust fund under the terms of the trust deed and the general law, that right can be lost if they act in a manner designed to benefit themselves;
  • it is important that trustee directors of SMSFs recognise when they have a conflict of interest (which may be often) and understand their duty of impartiality; and
  • trustees should remember they have a right to approach the court for directions, in certain circumstances.

This case is also a reminder that the executor of a deceased member’s Will (the legal personal representative) does not automatically become a trustee (or trustee director) of an SMSF following the member’s death.

Contact us

There are many complexities associated with SMSFs especially when family dynamics come into play.

Our lawyers have extensive experience within this area. If you require advice related to this please contact us.

Contact:

Thalia Dardamanis
Bernie O’Sullivan
© Bernie O’Sullivan Lawyers