In a significant judgment, the Supreme Court of Queensland has confirmed an attorney has the power to make, renew or extend a superannuation binding nomination on behalf of a member.
Cooper Grace Ward Lawyers said the decision will have a substantial impact on the approach to estate plans, binding nominations, the appointments of attorneys, and restrictions and powers in enduring power of attorney documents.
The judgment comes after the law firm recently acted for an SMSF trustee in an application to the Supreme Court of Queensland in relation to the ability to pay a death benefit from the fund.
The John Giles Superannuation Fund was established in 1992 by deed dated 21 February of that year, with the deed having been updated several times following establishment.
There were various historical issues with the variation deeds, including the fact one variation deed was not properly signed. This error had consequences for the validity of later variation deeds that were based on the variation power in the invalid variation and ultimately who the SMSF trustee was.
As a result, the court needed to clarify what the current rules of the SMSF were and who the current trustee was for the purposes of paying the death benefit.
At the date of death the member had an accumulation account and a lifetime complying pension in the SMSF. Although the pension was recorded in the SMSF’s financial statements as having a reversionary nomination, the trustee could not find any original documentation relating to the establishment of the pension or the nomination of the beneficiary.
“Without this documentation, the trustee cannot, without risking breaching its fiduciary duty, pay the pension to the reversionary beneficiary,” Cooper Grace Ward Lawyers said.
The member made a binding death benefit nomination (BDBN) in 2013, which was to lapse after three years. The member lost capacity soon after implementing the BDBN. Before the BDBN lapsed in 2016, the member’s attorney signed two documents, including a new BDBN and a letter to the trustee of the fund confirming an extension of the 2013 BDBN.
“As there is no legal authority confirming whether an attorney appointed under an enduring power of attorney has the power to make or confirm a binding nomination, the trustee of the SMSF was unable to determine whether either of the BDBNs were valid,” the law firm said.
“If the BDBNs are invalid, the trustee will be in breach of its fiduciary duty if it pays the member’s death benefit in accordance with the BDBNs.”
The extension of the 2013 BDBN confirmed the terms of the original 2013 BDBN, which had nominated 5 per cent of the death benefit be paid to a person who was not the member’s dependant or legal personal representative.
To avoid the possibility of the 2013 BDBN and extension being invalid due to the nomination of a non-dependant, the new BDBN signed by the attorneys changed the nomination to split the 5 per cent between the remaining dependants nominated in the original 2013 BDBN.
The court confirmed the original BDBN made by the member in 2013 was a valid nomination despite the 5 per cent nomination to a non-dependant. Second, the court held an attorney has the power to make a BDBN on behalf of a member.
Third, the court had to consider whether the extension of the BDBN or the new BDBN made by the attorneys was a conflict transaction (as one of the attorneys or their family members benefited from the nomination).
“In this respect, the court agreed that the reason for making the extension of the original BDBN was to ensure the member’s estate planning wishes were carried out so the attorneys’ interests coincided with the member’s, rather than conflicted,” Cooper Grace Ward Lawyers said.
“However, in determining whether the making of the new BDBN (which reallocated the 5 per cent invalid nomination), the court did not accept that this was not a conflict of interest and, in the absence of the member’s enduring power of attorney document allowing such a conflict, the new BDBN could not be valid.”
The law firm warned existing estate plans, especially enduring powers of attorneys and BDBNs, will need to be reviewed to ensure attorneys are not given undue broad powers that might allow them to make a nomination that is inconsistent with the member’s estate planning wishes.
“We see many enduring powers of attorney where all conflicts are authorised,” it said.
