Don’t feud over family assets

SMSF technical expert and columnist for The Australian newspaper
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In a salutatory lesson on how family feuds can destroy everything, last December I wrote about an important Victorian Supreme Court case involving an SMSF death benefit and the validity of a Binding Death Benefit Nomination (BDBN). But there have been further developments in that same case that only highlight the importance of making sure all parties are happy with any estate planning measures you take.

The case

You can read that article here: but here is the outline of the case to recap.

Maxwell Morris died in late February 2010. At the time of his death, Morris was married to Patricia Morris, his second wife. His daughters – the executrices of his estate – valued his net assets at over $1.8 million.

Maxwell and Patricia were the only trustees and members of the Morris Family Superannuation Fund, an SMSF, which had been established in August 2005. There were no other members or trustees of this fund.

At 30 June 2010, the fund had assets of over $1.3 million. Patricia’s interest in these assets was about $450,000. The balance belonged to Mr Morris.

About $1 million of Maxwell’s estate was outside his SMSF. The vast majority of this was to be left to Patricia. For some assets (such as their former family home) she was given a life interest.

Since December 2005, they had both received super pensions.

In March 2008, Mr Morris completed a binding death benefit nomination (BDBN) with all his super benefits to be paid to Susan Wooster and Kerry Smoel, his two daughters from his first marriage.

Other parties in the case disagreed about the validity of the BDBN but the Supreme Court told the trustee to pay just over $600,000 of Maxwell’s super benefit by 16 April 2013. And then in November 2013, the Court decided that the remainder of the death benefit, plus interest for late payment, could be paid out of the super fund’s assets (even if this meant that Patricia’s own super account would be reduced).

It also said that all costs for the case would be paid by the super fund’s trustee and any further money owing to them would be paid by Mrs Morris personally. In other words Mrs Morris potentially lost a substantial sum of money.

Subsequent Developments

Since the super death benefit case was handed down in November and since my original article appeared, there have been some further developments.

Patricia Morris sued the trustees of Max’s deceased estate – Kerry Smoel and Susan Wooster.

However, Patricia Morris died in September 2013 and the case was finalised by the executor of her estate.

And as her estate was insolvent (prior to this event her estate was estimated to be worth approximately $250,000), the daughters won’t receive money they were unable to recover from the Morris Family Super Fund and the Court had awarded to them in the super death benefit case.

The case notes say that the value of Maxwell’s estate had fallen to under $200,000 – a drop of almost 90% of its original value.

The judge in this particular case said that, “Mrs Morris’ character and conduct are evidenced in her fierce pursuit of losing litigation against the estate of the deceased and in the superannuation proceeding. She held a stubborn belief in what she considered to be her entitlements, as well as the correctness of her stand, no matter the ultimate financial or emotional cost was to her, to the estate of the deceased or to the defendants … the economic consequences of the positions … has been disastrous, both legally and financially, for her and the estate of the deceased.”

Ultimately, the judge, Justice McMillan, decided that Mrs Morris’ claim should be rejected because the deceased had made adequate provision for her via the assets in the family trust, her superannuation pension and other benefits, such as a life interest in two properties. All that money however was lost due to litigation. The costs she and others incurred were “out of all proportion to any likely gains”.

I’m an outsider and have no knowledge of the family dynamics. But based on the published Court decisions, it would seem that Maxwell Morris made good provision for all his family and their divergent interests. Sadly, most of his efforts and the money he put together seems to have gone to lawyers and other creditors.

Here is a salutary lesson of how your superannuation and your other wealth can be lost.

Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.

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