A recent court case has demonstrated that where an SMSF trustee has an enduring power of attorney (EPOA), its power and scope to act on the trustee’s behalf should be limited within the trust deed, according to an SMSF legal firm.
Cooper Grace Ward partner Clinton Jackson said the case of Re SB; Ex Parte AC [2020] heard in the Queensland Supreme Court also confirmed a decision to make a binding death benefit nomination (BDBN) was a financial matter and could be made for an individual by their administrator or attorney.
Writing on the legal firm’s website, Jackson said the case involved SB, who was left paralysed after a motor vehicle accident, and being unable to manage her financial affairs, one of her sons was appointed as an administrator for financial matters unrelated to the damages settlement from the accident.
The damages settlement of $6.75 million was invested into a retail superannuation wrap fund in which the trust deed provided that, on the death of SB, the trustee had to pay a superannuation death benefit either to those people specified in a BDBN or, if there was no BDBN in place, to one or more of the member’s dependants and legal personal representative as determined by the trustee using their discretion.
Jackson said the court then considered whether the son, as administrator, had the power to make a BDBN directing the trustee to pay the death benefit to the estate and whether a BDBN is a testamentary act or a financial matter.
“An administrator can do anything in relation to a financial matter, but they cannot make or revoke a will or undertake a testamentary act,” he noted, adding the court found the execution of the BDBN was a financial matter and the administrator could make a nomination in favour of the legal personal representatives of SB.
He said this decision reinforced a similar decision in the Re Narumon case, also heard in the Queensland Supreme Court, where the court found the member’s attorney appointed under an EPOA could make a BDBN on behalf of a member who had lost capacity.
These cases reinforced the need to have a properly structured estate plan in which EPOAs and SMSF trust deeds work together to provide attorneys with only the powers the SMSF trustees and members intend them to have, he added.
“Although the ability of the administrator in this case to make a BDBN on behalf of the incapacitated member was important to achieving the desired outcome, this may not be appropriate in all circumstances,” he said.
“There are circumstances where it would be possible for an attorney or administrator to use these powers in a way that would defeat the intended outcome of a client’s estate plan.
“It is therefore essential that existing estate plans, in particular EPOA and SMSF trust deeds, are reviewed to ensure EPOA documents allow attorneys to renew, extend or make binding nominations on behalf of a member where appropriate.”
He said these documents should also be reviewed to ensure attorneys do not receive such broad powers that they can make a nomination that is inconsistent with the member’s estate planning wishes.
“Unfortunately, we are continuing to see many EPOA and SMSF trust deeds that give attorneys almost unlimited power to change a superannuation death benefit. This can lead to significant issues for the advisers involved if this is not consistent with their client’s desired outcome.”
The issue of using an SMSF trust deed to restrain the power of an EPOA was also recently raised by Hill Legal which noted that superannuation laws do not define when a person has lost the capacity to be an SMSF trustee and this could be exploited by a legal personal representative to gain all the powers previously held by the trustee.
