Wooster, SMSF and death

As a new type of family becomes more prevalent, the “blended” family according to our verbally challenged opposition leader, issues like Wooster are going to become more relevant.

In this case a husband passed away. His wife expected almost $1 million from his SMSF but he had a BDBN in favour of his daughters of his previous marriage.

And then the real blending began…

The wife as a co trustee of the SMSF complained to her accountants that she knew nothing about this (being honest she knew not much about the running of the SMSF at all). Ah ha! Does this mean the BDBN has not been provided to the trustee and so is ineffective? The husband as co trustee obviously knew about it but the wife said she did not…

The wife then formed a trustee company, made it the trustee of the SMSF, with her as a director and and paid most of the hubbies account to herself. Interestingly i reckon she kept a lot in the account to pay the legal fees she expected.

Then the daughters challenged this and all agree to use a special review of the Court (non binding but cheap). The review said the BDBN was valid… But the wife decided to ignore this and keep the money.

The Victorian Supreme Court was not impressed to say the least. It confirmed the BDBN was valid, the daughters got a cost award, that as the wife as a director of the trustee company has acted in her interest against independent review she was personally liable and that she also not indemnified by the assets of the trusts.

This meant the hundreds of thousands of costs had to come out of the wife’s pocket! Now she had died by the time of the decision so she (her LPR) had the cash from the fund.

So in the end the daughters got their $1 million 5 years late, the wife got access to $600k in her final years and the lawyers got the wife’s assets remaining after death.

Lessons are first don’t go against a BDBN. The wife actually got (bad) advice but that is not enough. Second if a fight is going to happen, make sure the trustee or directors of the trustee are not going to benefit to the exclusion of other members…

Do will templates have a BDBN appendix and the instructions to send these forms to the trustees of the SMSF?

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About Ken Mansell

As a stay at home Dad most of the week this is my way of pretending I am still the tax counsel of ASX and SEC listed companies, working at big 4 firms, working at the Federal Treasury, on the Henry Review and at Parliament House for the previous government.
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