For the beneficiary of a large damages award with insufficient
mental capacity to manage their own funds, the court would
typically order those funds to be held by a Public Trustee or
trustee company and manage those funds under a court appointed
trust for the use and benefit of the plaintiff during their
lifetime. But for such beneficiaries there is potentially
substantial benefit to be obtained from the transfer of some of
those funds into superannuation.
Trustees failing to consider the transfer of funds into
superannuation for incapacitated recipients of damages awards have
been found in other jurisdictions to be liable: Re CAC  QGAAT
63, but in Western Australia the authority to do so has now been
clarified in two recent decisions having a significant impact upon
personal injury claims.
In the case of Perpetual Trustee Company Ltd v Cheyne
 WASC 225, a matter in which Kott Gunning was involved, Mr
Cheyne sustained serious injuries in a motor vehicle accident, with
damages compromised at just under $5.5million. Perpetual was
appointed as trustee of those funds in the District Court and
considered it prudent to invest 98% of those funds into
superannuation, with projected additional benefits to the fund of
$10 million during Mr Cheyne's lifetime.
Specific benefits expected were:
No income tax payable on the transfer provided it was made
within 90 days (s292-95(1)(b) Income Tax Assessment Act
No income tax, or substantially reduced income tax of 15%
payable on income from the investment of the contribution
(s280-20(3), (4); s295-10; s295-385; s295-390 ITAA);
No income tax payable on withdrawal of the contribution whether
as a lump sum or income stream (s292-95(1); s 301-10 and 301-30
Even if point 3 was incorrect, tax free status for some or all
of the after tax earnings from investment, or substantially reduced
tax to a maximum of 20% due to offset benefits on withdrawal.
Justice Edelman was required to consider the powers of a trustee
under a court ordered trust of judgment funds for the benefit of
the severely injured plaintiff. He declared that the trustee had
power in the circumstances to transfer trust funds to a
superannuation fund to be administered for the benefit of Mr
In doing so he departed from a decision of Wisbey DCJ of the
District Court in the case of McInnes v Insurance Commission of
Western Australia  WADC 17 in which a trustee's
application to invest a damages award into superannuation was
rejected on the basis that this would amount to a divestment of
those funds by the trustee and deprive the Court of protective
control, contrary to its parens patriae jurisdiction. Justice
Edelman concluded that although the District Court would not have
power directly to supervise those funds, the same degree of
scrutiny would exist for Mr Cheyne's protection.
Since the Cheyne decision, Justice Beech of the Supreme Court
has applied those principles in the matter of Re Hoang Minh Le;
ex parte The Public Trustee  WASC 31 in authorising the
Public Trustee to invest the substantial bulk of trust funds from a
personal injury settlement of over $4.7 million into
superannuation. In order to avoid the need for future applications
of that type, Justice Beech considered that the District Court
could direct that the trustee have power to apply the income and
capital of the trust fund for the maintenance, welfare, advancement
or otherwise for the benefit of the person under the disability.
When combined with the effect of the decision in
Cheyne, this means that an order to that
effect empowers the payment of some or all of the trust funds into
superannuation so long as it is 'for the advancement or
otherwise for the benefit of the beneficiary'.
An issue yet to be determined is the extent to which the ability
to make such investments will impact upon the amount of future
compromises on the assumption that such investments can now be
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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This was an interlocutory decision about the appointment of a tutor for the child appellant, to carry on his proceedings.
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