Cooper Grace Ward Lawyers’ Partner Scott Hay-Bartlem, Partner Clinton Jackson and Senior Associate Hayley Mitchell discuss how their firm recently acted for a trustee of a Self-Managed Superannuation Fund in an application to the Supreme Court of Queensland, in relation to the ability to pay a death benefit from the SMSF.
We believe the outcome of the case will have wide implications for SMSFs, because it includes ineffective variations and changes of trustee, missing pension documents and actions by a member’s attorney.
ISSUES FOR DETERMINATION
In order to be able to pay a death benefit, the Court has been asked to determine the following issues.
The current rules and trustee of the SMSF
The SMSF was established in 1992 and the trust deed was subsequently updated several times.
There were a number of historical issues with the variation deeds, including that one variation deed was not properly signed. This error had flow-on effects for the validity of later variation deeds that were based on the variation power in the invalid variation, and ultimately who the trustee of the SMSF was.
As a result, the Court needs to determine which are the current rules of the SMSF and who the current trustee is for the purposes of paying the death benefit.
Loss of documentation (including pension documentation)
At the date of the member’s death, the member had an accumulation account and a lifetime complying pension in the SMSF. Although the lifetime complying pension was recorded in the SMSF’s financial statements as having a reversionary nomination, the trustee was unable to locate any original documentation relating to the establishment of the pension or the nomination of the beneficiary.
Without this documentation, the trustee cannot, without risking breaching its fiduciary duty, pay the pension to the reversionary beneficiary.
The validity of two BDBNs made by the member’s attorneys, under an enduring power of attorney
The member made a BDBN in 2013, which was to lapse after three years. Shortly after making the BDBN, the member lost capacity. Before the BDBN lapsed in 2016, the member’s attorneys, signed two documents:
- a new BDBN; and
- a letter to the trustee of the fund confirming an extension of the 2013 BDBN.
As there is no legal authority confirming whether an attorney appointed under an enduring power of attorney has the power to make or confirm a binding nomination, the trustee of the SMSF was unable to determine whether either of the BDBNs were valid.
If the BDBNs are invalid, the trustee will be in breach of its fiduciary duty if it pays the member’s death benefit in accordance with the BDBNs.
In addition to these issues, the following complications need to be dealt with to assist the trustee:
- The issue of who is in fact the trustee of the SMSF needs to be determined. As there are missing change of trustee documents, together with invalid variations, substantial work is required to determine who actually is the trustee and therefore has the power to pay the death benefit.
- The estate of the deceased SMSF member is also the subject of a family provision claim. As the assets of the SMSF are substantially more than those of the estate, the disgruntled family member has targeted the SMSF death benefit.
The Court has not yet delivered its judgement, but it is expected to do so shortly.
HOW TO AVOID BEING THE NEXT CASE
Despite sounding extraordinarily complex, the issues present in this case are common and arise in the administration of many SMSFs. The estate planning of a member of an SMSF should always include a thorough review of the SMSF’s history to ensure that the member’s wishes will be carried out, and the SMSF will not be susceptible to a dispute arising over the payment of the death benefit.
In our experience, the history of most SMSF variation deeds and the validity of reversionary pension and binding nomination documents frequently give rise to issues in the administration of SMSFs.
If there are any issues with the history of an SMSF (such as lost documentation or ineffective deeds), seek advice about the implications and what steps can be taken.
Scott Hay-Bartlem and his team specialise in advising on tax, superannuation, structuring and restructuring, and estate planning and succession. This includes assisting accountants, financial planners, lawyers and other professional advisers with helping their clients deal with these issues. Scott regularly provides training sessions on superannuation, tax and estate planning and succession issues and is an SMSF Specialist AdvisorTM accredited by the SMSF Association. Scott is listed in Best Lawyers Australia for Superannuation Law, Trusts and Estates, Wealth Management / Succession Planning Practice. Additionally, Scott was named Best Lawyers’ 2016 Brisbane Wealth Management / Succession Planning Practice ‘Lawyer of the Year’ as well as Best Lawyers’ 2019 Brisbane Superannuation ‘Lawyer of the Year’. Contact Scott at [email protected]
Clinton Jackson, part of the commercial team, advises his clients on an extensive range of commercial and corporate matters, business mergers, acquisitions and sales, tax and structuring issues, self-managed superannuation, asset protection and succession, restructuring and exit strategies. Clinton’s unique range of expertise enables him to assist his clients with both their personal and business legal issues and to advise through all phases of the business/investment lifecycle. Clinton is an accredited specialist superannuation adviser with the SMSF Association and is a highly sought after speaker who regularly presents at seminars and conferences. Contact Clinton at [email protected]
Hayley Mitchell is a Succession Law Accredited Specialist (Qld) and a senior associate in the commercial team at Cooper Grace Ward. Hayley practices in estate and trust disputes, estate planning, and estate administration. Hayley has experience in providing a broad range of advice involving executor’s duties, beneficiaries’ rights, problematic and contentious estate administration, and matters involving attorneys, administrators and guardians. Her particular areas of interest are family provision claims, Will disputes and testamentary capacity, contentious applications for probate and letters of administration, and contentious superannuation death benefit applications. Contact Hayley at [email protected]