Documentation, Estate Planning

Trustee dispute underlines need for deed certainty

SMSF deed power of attorney

A recent legal case has confirmed SMSF trustees appointed under an enduring power of attorney can remain in place unless the fund deed dictates their term.

Trustees appointed under an enduring power of attorney (EPOA) will remain in the role unless the SMSF trust deed terminates their role, meaning they can direct death benefits to any party including themselves, an SMSF legal expert has warned.

Hill Legal principal and senior lawyer Chris Hill gave the warning in the wake of the recent case of Dawson v Dawson, which he said was “a solemn reminder of what can go wrong when families, particularly blended families, with SMSFs are in conflict with incomplete documentation”.

Writing on the SmarterSMSF website, Hill said the case, which centred on whether a trustee appointed under an EPOA remained in that position after the death of the member who appointed them, highlighted the importance of an SMSF’s trust deed and associated documentation.

“The Dawson case has again shown that a court will carefully review the provisions of the trust deed relating to the appointment of trustees as a matter of strict trust law,” he said.

He added the case also highlighted the appointment of an executor, who was not the trustee appointed under the EPOA in this case, as replacement trustee on the death of a member was permissive and not mandatory under the provisions of section 17A of the Superannuation Industry (Supervision) (SIS) Act.

The case was consistent with a number of others in recent years in that the SMSF documents and the validity of previous deed upgrades, trustee decisions and how they impact on the validity of any current death benefit nomination were used to  reach a decision, he said.

“Practically, what this means is that if an attorney appointed by an EPOA is appointed as replacement trustee during the period of incapacity of a member, and the member later dies, unless the trust deed of the fund specifically terminates the attorney’s role as trustee, they will remain in office as trustee for the purposes of the payment of the deceased member’s death benefits,” he noted.

Additionally, he said if there was no valid binding death benefit nomination (BDBN) in place, this trustee “will be able to exercise a discretion, made in good faith and for a proper purpose, to pay out the death benefits to any person who qualifies as a ‘dependant’ for SIS purposes, which can includes themselves”.

He said the Dawson case also showed how important it was for SMSF members to be certain the person who would gain the most from their superannuation on death should have control of the fund following the death of that member. At the same time, he added, the appointment of a ‘fund guardian’ could safeguard a fund from a rogue attorney exercising control of the fund on death.

“We continue to see many clients assume that their executor will control superannuation death benefits as part of the administration of their estate, but the Dawson case shows how these intentions can fail, particularly if the attorney and executor are different persons,” he said.

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