Self-Managed Superannuation Funds or 'SMSF's" have
become increasingly popular throughout Australia. Like a
traditional superannuation plan, an SMSF involves the management by
a trustee of capital and contributions from plan members for
In a traditional superannuation plan, a super fund often
operates as a trust. The trustee is responsible for the operation
of the fund and has an obligation to formulate and implement an
investment strategy. A trustee is liable for breaches of these
obligations. Traditional superannuation plans often have thousands
of members in their plans. Trustees for these plans usually have
backgrounds in finance and are often some of the best
money-managers in the country. The trustees are experts in
compliance with the laws and utilise the latest industry resources
and personnel to ensure that they are fluent with tax and other
regulatory issues concerning the fund.
What separates an SMSF from a traditional superannuation plan is
that in an SMSF, the members are also the trustees. The
trustee/members are often (but not always) lay-people who are
endeavouring to manage their own super fund. Despite the lack of
professional designation, a lay trustee of an SMSF is held to the
same high regulatory and fiduciary standards in their control and
administration of a fund as the trustee of a large superannuation
scheme. This can create complexities for lay-people in their role
The recent Victorian Supreme Court case of Wooster v. Morris
illustrates the demands on a lay SMSF trustee. In that case the
deceased died leaving an SMSF with a binding death benefit
nomination directing his superannuation in favour of his two
children from a first marriage. The trustee of the SMSF upon his
death was his second wife. The second wife was now the trustee over
the beneficial funds for her late Husband's children from his
Rather than simply paying the binding death benefit nomination
to the step-children, the trustee instead opted to contend that the
binding death benefit nomination to the children was invalid. She
then paid the death benefit under the SMSF to herself instead of
If she had been correct in her assertion that the binding death
benefit was invalid, she would have had discretion to disburse the
funds as she saw fit (including distributions to herself).
Predictably, the children contested the distribution and the
step-mother trustee eventually conceded that the death benefit to
the children was binding. Ultimately, because of the delays and
litigation caused by the step-mother trustee's actions, she was
ordered by the court to not only pay the children their death
benefit under the SMSF but also accrued interest and their
substantial legal costs. In making those orders, the court ruled
that the trustee had not acted as an "objective and
The lesson to be learned from this matter for SMSF trustees is
that they have a duty to act with impartiality and in the interests
of the beneficiaries (not in their self-interests). The penalties
for failing to act fairly and impartially can result in expensive
litigation and the imposition of personal costs orders.
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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