Mr John Giles died on 14 June 2017, aged 80. By that stage, his Self-Managed Super Fund (SMSF) established in 1992 had a balance comprised of about $1 million in the accumulation account and about $3 million in value in a lifetime compliant pension.
His estate to be dealt with under the terms of his Will he made in August 2013 only had assets to the value of about $200,000.
One of Mr Giles’ adult children from a prior marriage is challenging the Will. That litigation is over $200,000 and not the extra $4 million if the superannuation stays outside the estate as Mr Giles intended.
In August 2018, Justice Bowskill in the Supreme Court of Queensland made orders and declarations in relation to the decisions to be made by the trustee of the SMSF regarding the $4 million in superannuation.
Although not stated in the judgment, keeping the $4 million from potentially falling into the estate was no doubt a goal behind this application to the court.
By a binding death benefit nomination (“BDBN”) made in April 2013, Mr Giles directed that his benefits be paid 47.5% to his second wife of 19 years, Narumon, 47.5% to his son Nicholas from his second marriage and 5% to Mr Giles’ sister. Mr Giles had previously nominated Narumon as the reversionary beneficiary for his lifetime complying pension which formed part of his superannuation benefits.
The problem with the 2013 BDBN which was extended in 2016, is that Mr Giles’ sister is not a valid beneficiary under superannuation law to receive his superannuation death benefits as she was not a “dependent”.
The court decided that despite the invalidity of the 5% gift of the superannuation death benefits to Mr Giles’ sister, the rest of the BDBN was still valid. Narumon and Nicholas therefore are to receive their combined 95% share of the superannuation.
If the BDBN was wholly invalid, then Mr Giles’ children from his previous marriage may have had a chance to argue for a share of the superannuation, thus defeating Mr Giles’ intention.
The trustee will have to follow the terms of the trust deed to determine whom to pay the 5% value of the superannuation death benefits to. The judgment does not detail the relevant clause of the trust deed. Ordinarily the potential eligible recipients are spouses, children, financial dependents, persons in interdependent relationships or the legal personal representative on behalf of the estate of the deceased.
As Narumon is the sole director of the trustee which is a company, subject to the terms of the trust deed, she will be making the decision herself as to how the 5% share is paid. Narumon would be entitled to pay the 5% share to herself or Nicholas, or both, and not to the estate which is under challenge, or to Mr Giles’ children from the former marriage, unless the trust deed requires that to occur.
Another interesting aspect of this decision was that the court confirmed that attorneys under enduring powers of attorney can make BDBNs on behalf of principals for the payment of their superannuation death benefits upon their death. In this particular matter, a BDBN was made in April 2013 by Mr Giles and was only valid for three years, expiring in June 2016.
By June 2016, Mr Giles had lost capacity and Narumon and his sister were acting as attorneys under his enduring power of attorney made in January 2013.
Narumon and Mr Giles’ sister signed a new BDBN in 2016 on behalf of Mr Giles as his attorneys which extended the 2013 BDBN. It was this extended BDBN which was in place at the time he died. The court found that extending Mr Giles’ BDBN was a financial decision that an attorney could make under an enduring power of attorney. Even though Narumon was a beneficiary of the extended BDBN which could be said to be a conflict transaction invalidating the extended BDBN, the court accepted that the extension merely reflected Mr Giles’ wishes.
Had the court decided the attorneys could not extend the 2013 BDBN, then the superannuation death benefits of $4 million might have been exposed to claims by Mr Giles’ adult children who were not the intended beneficiaries.
At the same time that Narumon and Mr Giles’ sister extended the 2013 BDBN, it was known that the 5% disposition of the superannuation death benefits to Mr Giles’ sister was going to be invalid. Narumon and Mr Giles’ sister completed a second BDBN as a backup it appears, which purported to distribute the 5% to Narumon and her son who were valid beneficiaries under superannuation law.
The court found that the backup BDBN was invalid because it was a conflict transaction for Narumon to sign a BDBN as attorney and which gave her a larger entitlement personally than the 2013 BDBN Mr Giles had made.
Conflict transactions can be overcome if the principal when making an enduring power of attorney excuses such a conflict. Thus, the drafting of enduring powers of attorney becomes very important.
At Macrossan & Amiet Solicitors we are experienced in the drafting of enduring powers of attorney and BDBNs. Please contact one of our solicitors of your choice if you need to consider your BDBNs and Enduring Power of Attorney as part of your succession plan.