The case of Re Narumon Pty Ltd examines a number of important SMSF issues including defects in a chain of SMSF trust deeds, proving whether a pension and a reversionary nomination exists without original pension documents and whether a binding death benefit nomination (BDBN) can be renewed or made by an attorney. This snippet looks at the issue relating to whether a BDBN can be renewed or made by an attorney.

The deceased member made 5 binding BDBNs between 2010 and 2013 before he lost capacity in late 2013. In his final BDBN, dated 5 June 2013, he directed the SMSF trustee to pay his (accumulation) benefits to his second spouse as to 47.5%, his child of his second marriage as to 47.5% and his sister as to 5%. The BDBN stipulated that it would cease to have effect in 3 years after it was signed (ie 5 June 2016). In March 2016, the attorneys for the then incapacitated member (being the second spouse and the sister), aware that the final BDBN was about to lapse did two things. First, they attempted to renew the final BDBN. Second, they signed a new BDBN on behalf of the member. The attorneys were aware that the nomination of the sister was not permitted under the super laws, so when preparing the new BDBN they stipulated that the benefits be paid to the second spouse (50%) and the child of the second marriage (50%).

The Court made a number of important findings in relation to the BDBNs:

the SMSF trust deed did not adopt the BDBN requirements in regulation 6.17A of the Superannuation Industry (Supervision) Regulations 1994 notwithstanding that the SMSF trust deed stated that BDBNs were required to comply with the “Superannuation Law” and therefore the BDBN requirements were solely those contained in the SMSF deed.
the BDBN clause in the SMSF trust deed was found to be missing some words (ie that death benefits could only be paid to legal personal representatives and dependants) and the Court was prepared to read those words into the SMSF deed.
the nomination of the sister (being a person who could not receive death benefits under the super laws) was not valid but that part invalid nomination did not invalidate the whole BDBN and the remaining nominations could still be valid (ie the trustee could still be bound by the nominations of the spouse and son).
the SMSF trust deed did not contain any express provision to confirm or extend an existing BDBN and therefore the confirmation/extension by the attorneys depended on whether the attorney had the power to make/extend BDBNs (see below).
although the SMSF trust deed was silent on the matter, attorneys of the member could make a BDBN on behalf of a member in accordance with the provisions of the Queensland Powers of Attorney Act.
if an attorney makes a BDBN in favour of themselves then the exercise of that power will be void on the basis of the attorney’s obligation to avoid conflicts of interest unless the attorney has been authorised to act notwithstanding such conflict (eg in the power of attorney).
making a BDBN on the same terms of the member’s last BDBN would suggest such authorisation – here, because the BDBN made by the attorneys was different to the member’s last BDBN (ie there was no nomination to the sister in the attorneys’ nomination) such implied authorisation was not present and the BDBN by the attorneys was found to be void.
whereas, the renewal of the member's last BDBN by the attorneys was in accordance with the deceased's wishes (ie it was a renewal of his last BDBN) and therefore was effective (at least to the extent of the payment of 47.5% to the second spouse and 47.5% to the child of the second marriage).

Ultimately, the Court found that the BDBN by the attorneys was void. The Court ordered that the renewal of the BDBN was effective and that therefore that 47.5% of the accumulation account be paid to the second spouse and 47.5% be paid to the child of the second marriage. The remaining 5% was left to the SMSF trustee’s discretion.

This case is an important reminder of the importance of: considering the requirements of BDBNs (in particular as set out in the SMSF trust deed), following those requirements and whether it is desired, or appropriate, for attorneys to make or renew BDBNs.

To discuss this further or for more information please contact:

Phil Broderick
Principal
Sladen Legal
T +61 3 9611 0163 l M +61 419 512 801
Level 5, 707 Collins Street, Melbourne, 3008, Victoria, Australia
E: pbroderick@sladen.com.au

Ashleigh Eynaud
Associate
Sladen Legal
T +61 3 9611 0129
Level 5, 707 Collins Street, Melbourne, 3008, Victoria, Australia
E: aeynaud@sladen.com.au