The recent case of Re Narumon Pty Ltd  QSC 185 is an important decision for those advising in relation to superannuation and succession law. The case involved a self managed superannuation fund and a consideration of the validity of a number of binding death benefit nominations. It touched on several issues, some of which resulted in a reminder or confirmation of the current law and some of which have resulted in new law. Set out below is a summary of the main issues discussed in the case.
- The case is a reminder of the importance of following the terms of the trust deed when varying its terms and ensuring that any deeds of variation are correctly executed. Here, the trustee was a company and because it didn’t execute a deed of variation in accordance with s. 127 Corporations Act 2001 (Cth), the particular deed was held to be ineffective.
- Documentation supporting the establishment of a lifetime complying pension and the nomination of a reversionary beneficiary of that pension had been lost. There was sufficient other evidence in this case to support a direction to give effect to the reversionary pension, however it is an important reminder to advisers to ensure that all relevant trust documentation is kept secure. From a practical perspective, a trust folder could be established where copies of all trust deeds, trust variations, trust resolutions and any other documents which may impact on understanding what rights and responsibilities attach to the trust are stored.
- It is important to remember when preparing a binding death benefit nomination on behalf of a member of any superannuation fund that the nomination can only require payment on death in favour of the member’s dependants or legal personal representative (reg 6.22 Superannuation Industry (Supervision) Regulations 1994). In this case, the member had nominated his sister to receive a share. It was held that the nomination was, to the extent that it nominated his sister, of no effect and it would be up to the trustee to determine the payment of that share (but it was still effective to the extent that the person(s) nominated was the deceased member’s dependant or legal personal representative). However, depending on the wording of the relevant clause in the particular trust deed, there is a risk that a binding death benefit nomination may not be effective if any person nominated in it is not a dependant or legal personal representative.
- Justice Bowskill agreed with and confirmed the decision in Munro v Munro (2015) FLR 93, where it was determined that s. 59(1A) of the Superannuation Industry (Supervision) Act 1993 (which authorises binding death benefit nominations in accordance with the regulations) does not apply to self-managed superannuation funds and that, accordingly, reg 6.17A Superannuation Industry (Supervision) Regulations 1994 (which includes the 3 year expiration requirement) also does not apply. Further, she held that any requirement in the trust deed to comply with “Superannuation Law” or “Relevant Requirements” (where defined in the deed to mean the laws or regulations that the fund must comply with to be a regulated superannuation fund) does not import the requirements in reg 6.17A. This means that the trust deed of a self managed superannuation fund can dictate its own terms for a valid binding death benefit nomination and importantly, can provide for the nomination to be non-lapsing. In this case, the terms of the trust deed at the time the nomination was made specified that it expired every 3 years. If instead, the nomination had been non-lapsing until it was revoked, it would have remained in force until the member’s death and the next issue may not have arisen.
- Because the binding death benefit nomination lapsed and the member had lost capacity, his attorneys stepped in and purported to refresh his existing binding death benefit nomination. The attorneys also purported to make a new nomination (which changed the existing nomination by removing the member’s sister who they realised wasn’t a dependant). The question to be determined for the first time by this case was whether an attorney can make a binding death benefit nomination on behalf of a member who has lost capacity.
Justice Bowskill commented that this would depend on a consideration of:
- the terms of the trust deed (which should allow any power or right of a member to be exercised by a person who holds an enduring power of attorney from the member, if they are under a legal disability);
- a consideration of the Powers of Attorney Act 1998 (Qld); and
- a consideration of the Commonwealth superannuation legislation (from which she decided there did not appear to be any restriction which would prevent an attorney from executing such a nomination on behalf of a member).
The decision ultimately came down to a consideration of the Powers of Attorney Act 1998 (Qld) (‘the Act’). It was held that the execution of a binding death benefit nomination in a superannuation context is a financial matter within the scope of the Act. It is not a testamentary act.
Her Honour discussed the potential for abuse but pointed out the protective features contained within the Act, and in particular, the requirement to avoid a conflict transaction, unless authorised by the principal. In this case the extension of the existing binding death benefit nomination by the attorneys was accepted as being valid despite there being no conflict clause in the enduring power of attorney document on the basis that the attorneys were ensuring the continuity of the member’s previously expressed wishes and as such, their interests coincided rather than conflicted.
She commented that where an attorney makes a new binding death benefit nomination for the first time (that is, where the member had not previously done so personally) or is amending an existing binding death benefit nomination, different considerations arise. In such a case there is a potential conflict which must be authorised in the enduring power of attorney document. Given that such a conflict was not authorised in this case, the new nomination was held not to be valid. Even where such a conflict is authorised she didn’t go so far as to confirm the attorney’s authority to make a new binding death benefit nomination because of the requirement to act “on behalf of” and in the interests of the principal. If in doubt, she suggested that it may be prudent for the attorney to approach the court for directions.
In summary, the case highlights the importance of proper estate planning for superannuation interests, including a consideration of what decisions might be made on a loss of capacity of a member. The trust deed for a self managed superannuation fund should be considered from an estate planning perspective to ensure that, where appropriate, it provides for an attorney to exercise the rights of a member under a legal disability and for the ability to make non-lapsing binding death benefit nominations. Members of all superannuation funds (whether self managed or not) should consider putting in place an enduring power of attorney which specifically authorises an attorney to make a binding death benefit nomination on their behalf in particular circumstances. However, care must be taken in the drafting of the document to ensure that the attorney is not given inappropriately broad powers that potentially allow them to make a nomination that would not be in accordance with the member’s wishes.