Why the court dismissed the appeal?

In response to the dismissal, View Legal founder Matthew Burgess noted a number of key points behind the Court of Appeal’s rejection of Mr and Mrs Wareham’s argument.

He referred to their belief that Helen Marsella’s surviving husband, who she had been married to for over 30 years, was “(not a)… beneficiary of the fund” as “a conclusion that was plainly wrong”.

Mr Burgess also said Mr and Mrs Wareham’s claim that there was evidence to suggest the trustees believed they owed “no duty to the estate or other beneficiaries” was “an erroneous assumption”.

Further, he noted that there was evidence that led to the conclusion that the trustees had failed to look at the trust deed for the fund, which Mr Burgess said was “a further breach of their duties”.

“Ultimately, therefore the court concluded that if the trustees did not exercise their discretion upon real and genuine consideration, there was no proper exercise of the discretion,” he said.

“The fact that the discretion could have been properly exercised in the same way (i.e. to pay the benefit entirely to one of the trustees) could not alter that position.”

Mr Burgess also highlighted the court’s dismissal of appeal as confirming the importance of the decision in the case of Karger v Paul [1984] VR 161, which lays out three obligations on a trustee when exercising a discretion, namely:

(a) to do so in good faith,

(b) upon a real and genuine consideration (a requirement that is so obvious that it is often not mentioned), and

(c) in accordance with the purpose for which the discretion was conferred.

Harder decisions for trustees

Education firm Smarter SMSF said the case leaves open “a number of disturbing and potentially difficult outcomes for trustees when exercising decisions, not only in the SMSF arena but in relation to all discretionary trusts in Australia”.

It noted that a trustee’s decision could be challenged if there is evidence of conflict between the trustee and the beneficiary that could amount to either bad faith or the failure on the part of the trustee to give real and genuine consideration to the interests of that beneficiary and, particularly, if there is no distribution to that beneficiary.

Smarter SMSF also said the Marsella case supports the view that specialist SMSF advice should be obtained, recorded and properly documented, potentially to be put into evidence where a trustee has to exercise a discretion.

“This is especially so for SMSFs and possibly for discretionary trusts. Such advice may also be required as to whether the trustee should or should not give reasons for its decision in circumstances where a potential beneficiary does not receive a benefit,” it said.

“If no reasons are given, a court will look for or imply any failure, particularly if it paid to one beneficiary.

Further, Smarter SMSF said it would be worthwhile for trustees to actively make and be seen to making enquiries about a potential beneficiary’s needs and resources in order to demonstrate that they have given real and genuine consideration before deciding on the payment of any death benefit where a discretion has to be exercised.

“This is where specialist advice is critical to this process, as it will be difficult for a trustee to be criticised if they follow that advice,” it said.

Law firm CGW Lawyers added that to properly pay a super death benefit, it is critical that:

• Where the decision-maker is also a possible beneficiary, extreme care is taken to ensure that any conflict has been properly dealt with.
• All advice provided to the decision-maker is clear and consistent with their legal obligations.
• All communications (both verbally and in writing) are legally correct and do not contain any wrong information or conclusions (as these can be used against you in a dispute).

“Although, it is not the court’s role to assess the fairness or reasonableness of a trustee’s decision, they can use all the circumstances surrounding the decision (rather than just looking at the resolution) to determine if the discretion was properly exercised,” the law firm said.