Changes to estate planning and binding nominations within superannuation

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estate planning

By Brett Griffiths

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Recently the Supreme Court of Queensland handed down a decision that will have wide ranging impacts on the future of estate planning and binding nominations within superannuation, and the appointment of attorneys and restrictions and powers in enduring power of attorney documents more generally.

Brett Griffiths, Director Superannuation Advisory at Vincents, engaged and assisted Cooper Grace Ward Lawyers, on behalf of the trustees of the superannuation fund, to ask the Court about certain outcomes.

The member’s binding nominations

Prior to engaging Vincents, the member made a Binding Death Benefit Nomination (BDBN) in 2013, which was to lapse after three years. Shortly after making the BDBN, the member lost capacity.

Prior to the BDBN lapsing in 2016, following advice from Brett Griffiths, the Trust Deed was updated to allow for making non-lapsing BDBN and the member’s joint attorneys signed two documents:

  • a new BDBN; and
  • a letter to the trustee of the fund confirming an extension of the 2013 BDBN.

The extension of the 2013 BDBN confirmed the terms of the original 2013 BDBN, which had nominated 5% of the death benefit be paid to a person who was not the member’s dependent or legal personal representative.

To avoid the potential of the 2013 BDBN and extension being invalid due to the nomination of a non‑dependent, the new BDBN signed by the attorneys changed the nomination to split the 5% between the remaining dependents nominated in the original 2013 BDBN.

Were the binding nominations valid?

First, the Court confirmed the original BDBN made by the member in 2013 was a valid nomination, despite the 5% nomination to a non-dependent. Although valid, it had lapsed so could not be relied upon. The Court accepted our submission that 5% nomination to the non-dependant does not affect the validity of the nomination as a whole.

Second, the Court held that an attorney has the power to make a BDBN on behalf of a member. The Court determined that there is no restriction within the superannuation legislation prohibiting an attorney from making a BDBN on behalf of a member and, in this case, the terms of the deed specifically allowed it. Further, the Court found that the making of a BDBN is a matter relating to the member’s financial matters (over which an attorney can exercise power), and that it is not an act that must be performed personally (agreeing that the making of a BDBN is not a testamentary act). Therefore, it is a financial matter that can be delegated to an attorney.

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 ensure the member’s estate planning wishes were carried out so the attorneys’ interests coincided with the member’s, rather than conflicted.
  • However, in determining whether the making of the new BDBN (which reallocated the 5% 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.

Take care with EPOAs and BDBNs

The decision provides clarity on the important issue of whether an attorney can make, renew or extend a BDBN on behalf of a member.

Existing estate plans, in particular enduring powers of attorney and BDBNs, will need to be reviewed to ensure:

  • enduring power of attorney documents allow attorneys to renew, extend or make binding nominations on behalf of a member where appropriate; and
  • attorneys are not given inappropriately broad powers that potentially 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).

Advice on the appointment of an attorney and on whether to include (and the drafting of) conflict clauses will now need to be considered with extreme caution in light of today’s decision.

Attorneys seeking to make, renew or extend a BDBN on behalf of a member will need to exercise that power with care having regard to the member’s wishes, the terms of the SMSF trust deed and the terms of the enduring power of attorney.

This case highlights the need for proper, well considered and drafted estate planning documentation. Had the member done this from the outset, the estate would have had many more hundreds of thousands of dollars to distribute to the beneficiaries.

Want to know more?

If you would like to know more about how these changes will impact you, please contact Brett Griffiths our Superannuation Advisory Director for assistance.

An Important Message

While every effort has been made to provide valuable, useful information in this publication, this firm and any related suppliers or associated companies accept no responsibility or any form of liability from reliance upon or use of its contents.  Any suggestions should be considered carefully within your own particular circumstances, as they are intended as general information only.

 

 

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