By Sarah Camm
In a significant decision handed down last week, the Supreme Court of Queensland has held that a Binding Death Benefits Nomination (“BDBN”) executed by an attorney was valid.
Justice Bowskill’s decision in Re Narumon [2018] QSC 185 is significant because, until now, the question of whether an attorney has (or should have) this power has been unclear, and has been the subject of some discussion in the legal community.
The reason for this uncertainty is as follows:
- An attorney can be given power to make financial and legal decisions on behalf of a principal, however the execution of a BDBN is not included in the examples of these types of decisions in the Powers of Attorney Act 1998 (Qld);
- An attorney cannot be given the power to make decisions about special personal matters, including making a will and appointing an attorney, in part on a policy basis, because of the potential for abuse;
- A BDBN, which provides direction for payment of a benefit after death of the principal, could be said to be testamentary or will-like in nature; but
- BDBNs differ from a will in that they often lapse, and must be renewed or re-made every three years, depending on the rules of the particular fund.
Facts in Re Naruman
In 2013 Mr Giles made a lapsing BDBN with his SMSF, nominating his wife and their son to receive 47.5% of his death benefits each, and his sister to receive 5%.
Shortly after making the 2013 BDBN, Mr Giles lost capacity. Under an existing Enduring Power of Attorney, his wife and sister were appointed his attorneys for personal and financial matters.
In 2016, before the 2013 BDBN expired, the attorneys executed an extension of the 2013 Nomination. They also executed a new BDBN, because they were concerned that the 5% distribution to Mr Giles’ sister in the 2013 BDBN, who is not a dependent as required by superannuation legislation, would invalidate the document.
The Court had to determine:
- Whether the 2013 BDBN was valid, despite the nomination of his sister to receive 5%
- Whether an attorney can execute a BDBN on behalf of the principal member
- Whether the extension of the 2013 BDBN or the new BDBN executed in 2016 were conflict transactions, and whether this invalidated the documents
The 2013 BDBN
The Court found that the 2013 BDBN was valid, but that as the member had no power to nominate his sister, and the trustee was not authorised to pay the benefit to her, the nomination of Mr Giles’ sister to receive the 5% benefit was of no effect.
Attorneys executing BDBNs generally.
The Court found that nothing in the Superannuation legislation appears to restrict an attorney of a member executing a nomination on behalf of that member, noting that the terms of the fund deed itself actually govern the rights of a member to make a BDBN.
The terms of Mr Giles’ fund deed did not prohibit an attorney executing a BDBN on behalf of a member and in fact expressly contemplated that they could.
The Court then considered the Powers of Attorney Act 1998 (Qld) itself and held as follows:
The effect of a BDBN, if valid, is to bind the trustee of the superannuation fun to pay benefits, following the member’s death, to the nominated persons (and, if relevant, to do so in the nominated way). That does not seem to fall within any of the examples in the definition of a financial matter, including as a legal matter relating to the principal’s financial matters. But the examples are not exhaustive and do not limit the meaning of the provision. It is difficult to see why the exercise of a member’s right under a SMSF deed, to require the trustee of the fund to pay benefits, after their death, in a particular way would not be “a matter relating to the [member’s] financial… matters”. Given the breadth of meaning of the word “financial”… such an act does fall within the meaning of this term.[1]
The Court also held that, although it deals with benefits of a member after their death, a BDBN is not a testamentary act, so it does not fall within the restricted ‘special personal matters’.
While acknowledging the possibility for abuse by allowing attorneys to make a BDBN on behalf of the principal, the Court noted that several protections against abuse exist in the making of an EPOA, as well as in the attorney’s duties to act honestly and in the principal’s interests, and to avoid a conflict of interest.
The 2016 Extension
The Court held that there was no conflict of interest in the execution of the extension by the attorneys. This Court accepted that the reason for executing the extension was to ensure continuity in Mr Giles’ estate planning and that his wishes continued to have effect. While the attorneys gained some benefit, this was held to be incidental to the exercise of the power, and coincided (rather than conflicted) with the interests of the principal. The 2016 extension was therefore held to be valid.
The new 2016 BDBN
The Court was not prepared to hold that the new BDBN made in 2016 was valid. The new BDBN removed the 5% nomination to Mr Giles’ sister, and nominated Mr Giles’ wife and son to each receive 50% of the benefit. While the change was minor, it was held that without express authority in the EPOA to enter into conflict transactions, the attorneys could not make a BDBN which changed what Mr Giles had proposed in favour of themselves.
Conclusion
Re Narumon does resolve some ambiguities in this important discussion. It is important to note however that the Court was considering circumstances where there was an existing BDBN to refer to. The Court did not exclusively determine whether, even if the EPOA did have a conflict clause, the execution of a BDBN either changing the member’s existing nomination or where the member had no previous nomination, would be valid.
Unfortunately, Binding Death Benefits Nominations are often overlooked in the Estate Planning process. EPOAs, too, are seen as a DIY document, simply containing a number of tick boxes for completion. Trust Deeds are often drafted by an accountant, and executed without a legal advice from your estate planning solicitor.
The decision in Re Narumon highlights the importance of having well considered advice over all aspects of your estate plan. At Just Us Lawyers we can review your existing EPOAs, BDBNs and other estate planning documents to ensure that they will do what you want them to.
We can draft appropriate conflict clauses to ensure your attorneys have the appropriate powers to act in your interests, and provide you with certainty and peace of mind that your affairs will be taken care of.
[1] Re Narumon [2018] QSC 185 at [69].
