Blanket clauses in enduring powers of attorney (EPOA) that seek to override conflicts of interest relating to the making or extending of a binding death benefit nomination (BDBN) should be avoided, an SMSF legal expert has advised.
Cooper Grace Ward partner Hayley Mitchell pointed out that, while a generic waiver of all conflict transactions in an EPOA document might avoid the issue of conflicts raised in Re Narumon Pty Ltd (2018), the blanket nature of such clauses were likely to be ineffective or, in some cases, high-risk.
“A blanket clause allowing all conflicts is an issue because it’s too broad and you’re potentially allowing a transaction that you don’t want to happen or it’s so broad that it’s not specific enough,” Mitchell said today during Cooper Grace Ward’s Virtual SMSF Intensive Day.
“You’ve got a risk that the court says: ‘Yes, the EPOA forgave all conflicts, but it’s absolutely way too broad. It didn’t contemplate this transaction, therefore we’re going to overrule the EPOA document essentially.’”
“Particularly if it’s not in the best interests of the member, I think you’re at risk of that blanket clause not being effective.
“If you’ve got a prior nomination and a new nomination is in line with the estate plan, then you might be able to get it over the line, but I think blanket clauses are really dangerous.”
In order for any BDBN made by an attorney to be valid, the fund’s trust deed would also need to allow for this to occur, she added.
“If you’re faced with a question of whether an attorney can make a BDBN, you need to check the terms of the trust deed because of course that can override whether or not the attorney’s got the power,” she noted.
“If the deed excludes it, even if the EPOA provides for it, you’re not going to have a valid nomination.”
In August, Cooper Grace Ward partner Clinton Jackson said the case of Re SB; Ex Parte AC (2020) demonstrated that where an SMSF trustee has an EPOA, its power and scope to act on the trustee’s behalf should be limited within the trust deed.
In the same month, Hill Legal principal Chris Hill said EPOAs could create risks that an SMSF gains an unsuitable trustee under ill-defined terms related to incapacity, which could be avoided if this role was defined within the SMSF trust deed.