Recent Cases: Obligations of trustees; Is the trustee doing right by me?

What are the legal obligations of trustees when exercising discretion pursuant to a trust deed? Recent Victorian Case law sets out those obligations.

The Court of Appeal in Victoria has recently handed down a decision confirming the obligations of trustees of a SMSF (and trustees generally) when exercising a discretion under the trust deed – Wareham v Marsella [2020] VSCA 92.

The case involved a dispute between the husband of the deceased, Mr Marsella, and the deceased’s daughter and her husband, Mr and Mrs Wareham, who were the trustees of the deceased’s SMSF.

Following the death of the deceased, the Warehams made a decision to pay all the superannuation death benefits to Mrs Wareham.

One of the central issues in the case was the obligations upon trustees when exercising an absolute and unfettered discretion, such as making a determination as to who is to receive superannuation death benefits.

Referring to the case of Karger v Paul, and cases which followed, the Court confirmed that when exercising a discretion the trustee must:

• Act in good faith;
• Act upon a real and genuine consideration of the interests of the dependants; and
• Act in accordance with the purposes for which the discretion was conferred.

If those essential factors are not present, then it cannot be said that there has been a proper exercise of the discretion conferred upon the trustee.

The Court of Appeal upheld the Trial Judge’s finding that the trustees had failed to give real and genuine consideration of the interests of the dependants of the deceased including Mr Marsella, as well as the removal of the Warehams as trustees of the fund.

The key takeaway from the case is the need for trustees to obtain specialist legal advice before making a death benefit payment, in particular as to who are the dependants of the deceased and their personal circumstances when exercising their discretion.

Should you have any enquiries regarding the obligations of a Trustee, please do not hesitate to contact our team at Culshaw Miller Lawyers.