The Supreme Court of Queensland in Re Narumon Pty Ltd  QSC 185 has recently considered:
- whether an ineffective variation to a fund’s trust deed means that a subsequent variation to that deed will also be ineffective and any resulting death benefit nomination;
- whether lost documents establishing a reversionary pension means the pension cannot revert to the reversionary beneficiary; and
- whether financial attorneys have the power to make, renew and/or amend a binding death benefit nomination.
The judgement handed down on 24 August of this year related to the John Giles Superannuation Fund (the Fund) – an SMSF of which Mr John Giles was a member.
Mr Giles passed away on 14 June 2017 leaving behind his wife Mrs Narumon Giles, their son Nicholas, four adult children from a previous relationship and a sister Mrs Roslyn Keenan. Mr Giles’ estate (over which a family provision claim was made by one of Mr Giles’ adult children) had a net value of approx. $200,000. Outside of Mr Giles’ estate were his benefits in the Fund, comprising an accumulation account of approx. $1 million and a lifetime complying pension with a value of approx. $3 million.
Mrs Giles, as the then sole director of the trustee of the Fund (Narumon Pty Ltd), sought declarations from the Court regarding the administration of the Fund, including how to pay Mr Giles’ reversionary pension and death benefits.
Of particular importance was the declaration sought regarding whether a binding death benefit nomination (BDBN) signed by Mr Giles’ financial attorneys in 2016 was valid. This is the first time the courts have had to consider such an issue.
History of trust deed variations
The Fund’s trust deed was amended multiple times in its history of its operation. An amendment made in 2007 (the 2007 Deed) was signed by Mr Giles in the wrong capacity and was therefore ineffective. To address this problem, a deed of ratification and variation was executed in 2014 (the 2014 Deed). Unfortunately, the recitals of the 2014 Deed referred to the ineffective 2007 Deed instead of the previous deed made in 2004. The 2014 Deed set out the requirements to make an effective BDBN.
Reversionary pension documents
The Fund’s financial statements showed that Mrs Giles was nominated as the reversionary beneficiary of Mr Giles lifetime complying pension. The documents establishing the pension and nominating Mrs Giles as the reversionary beneficiary could not be located, however, various correspondence between Mr Giles and his former adviser over several years referred to such arrangements. Further, material produced by the entity which prepared the pension documents confirmed that the pension would revert to Mrs Giles.
BDBN by financial attorneys
On 5 June 2013 Mr Giles appointed Mrs Giles and Mrs Keenan as his attorneys for financial matters pursuant to an enduring power of attorney. On the same day Mr Giles made a new BDBN (he had made several previous nominations) which was to expire 3 years later on 5 June 2016. It directed the trustee of the Fund to pay his death benefits 47.5% to Mrs Giles, 47.5% to Nicholas and 5% to Mrs Keenan.
Mr Giles lost decision making capacity soon after making this BDBN.
On 16 March 2016, Mrs Giles and Mrs Keenan, as financial attorneys for Mr Giles, signed an “extension of binding death benefit nomination” (the BDBN Extension). This extended the BDBN made by Mr Giles on 5 June 2013 for another three years.
At the same time (and in the alternative) Mrs Giles and Mrs Keenan signed a new BDBN (the New BDBN), which nominated Mrs Giles and Nicholas equally to receive Mr Giles’ death benefit. The reason for removing Mrs Keenan as a recipient was because she was not a dependant of Mr Giles’ for the purposes of the superannuation law.
Regarding the flawed trust deed variations, the Court found that signing the 2007 Deed in the wrong capacity made that deed ineffective. The Court also found that although the 2014 Deed referred to the wrong trustee power in its recitals, its operative provisions were drafted more broadly so that the amendment was valid and effective.
Regarding the missing reversionary pension documents, the Court was willing to accept the existence of a reversionary pension without locating the establishing pension documents. The evidence produced from the extensive search carried out by the trustee of the Fund and its advisers helped the Court to come to this conclusion.
Regarding the scope of the attorneys’ power to make the BDBN Extension and/or the New BDBN, the BDBN Extension was held to be a valid exercise of the attorneys’ power executed in accordance with the Fund’s current trust deed.
The Court considered the conflicts of interest at play. This being that Mrs Giles and Mrs Keenan were acting as attorneys whilst also recipients of Mr Giles’ death benefit.
However, the conflict had no bearing on the validity of the BDBN Extension because Mrs Giles and Mrs Keenan were confirming the pre-existing wishes of Mr Giles to ensure his estate planning wishes remained in effect.
The Court did not turn its mind to the New BDBN due to its findings on the BDBN Extension. However, it did caution that the fact Mrs Keenan was removed as a recipient could result in invalidity of the New BDBN.
This case demonstrates:
- the lengths to which historical amendments to the trust deed of a fund will be analysed by litigants and the Courts to ultimately determine whether a death benefit nomination is valid;
- the necessary document trail required to prove the terms of a pension and any reversionary beneficiary nomination;
- the importance of having quality documents to govern any death benefit payment and seeking to update a trust deed which does not allow for non-lapsing death benefit nominations (if the member wishes to make such a nomination);
- the tensions that can arise between superannuation arrangements and estate planning, particularly where family members may be acting in dual capacities. Conflict clauses can be inserted into powers of attorney, but this also requires careful consideration. Complications may manifest if an attorney is given too much power.
It is cause for reflection on the superannuation fund trust deeds and estate planning documents that your clients have in place. Should you require assistance or advice with this please contact Thalia Dardamanis.