This particular case involved an SMSF, the John Giles Superannuation Fund, which was established in 1992. The initial sole member was John Giles, who passed away in June 2017. He was survived by his wife Mrs Narumon Giles to whom he had been married for almost 19 years and had one son with.
Mr Giles also had four adult children from a previous marriage, Patricia Giles, Gregory Giles, Anthony Giles and Kelly Giles.
Mrs Giles is the sole director of the trustee, Narumon Pty Ltd. Up until recently, Mr Giles’ sister, Mrs Roslyn Keenan, was also a director but resigned from the position on 15 June 2018.
As previously reported by SMSF Adviser, the trustee of the SMSF, Narumon Pty Ltd applied to the court for certain declarations and orders in relation to the administration of the fund, in order to resolve some uncertainties that had arisen including the ability to pay a death benefit from the SMSF.
Mr Giles’ estate has become the subject of litigation, following a family provision application made by one of his adult daughters in March 2018, according to the judgement.
The estate has an estimated net value of approximately $200,000 but the benefits accrued by Mr Giles as a member of the superannuation fund, as at the time of his death, are significantly greater with the accumulation account of around $1 million and a lifetime complying pension with a value of about $3 million, the judgement said.
Mrs Giles and Mrs Keenan were appointed as the attorneys for Mr Giles pursuant to an enduring power of attorney made on 25 January 2013 and then again on 5 June 2013.
According to an affidavit provided by Mrs Giles, in June 2013 Mr Giles’ health began to deteriorate, including his memory.
She explained in her affidavit that she was seeking the declarations in the application as to what steps should be taken by the fund, given the issues concerning the execution of a 2007 deed of variation; missing documentation in relation to the initial establishment of Mr Giles’ lifetime complying pension, and her nomination as reversionary beneficiary of that pension; and the question of whether a binding death benefit nomination signed by Mr Giles’ attorneys in 2016 was valid and binding.
One of the most critical issues in this case was whether Mrs Giles and Mrs Keenan, as attorneys, had the power to confirm the 2013 BDBN nomination or make a new one, said Cooper Grace Ward Lawyers partner Scott Hay-Bartlem.
Justice Bowskill declared that the extension of the binding death benefit nomination, executed by enduring attorneys Narumon Giles, constituted in accordance with clause 31.2 of the 2014 deed, an effective binding nomination for the payment of the member’s benefit made in accordance with clause 31.2 of the 2014 deed. You can access the judgement here.
“This is the first time it’s been considered as far as I’m aware of that an attorney subject to the trustees of the super fund is able to renew a binding death benefit nomination for the person for whom they are the attorney,” Mr Hay-Bartlem.
“The judge considered in the case whether it was a conflict, because in this particular case, the attorneys were also the recipients, and so they said because you are confirming the existing estate planning intention, you didn’t have a conflict. So it may be a different answer if you are making one from scratch.”
Mr Hay-Bartlem said the case demonstrates that SMSF clients need to be very careful with their super fund deeds and estate planning documents, because the conflict of interest issue is a live one in relation to powers of attorney
“You often put a conflict clause in a power of attorney which allows you to enter into conflict transactions. So you need to be careful when doing power of attorney with super fund deeds that you don’t inadvertently give the attorneys too much power.”
I have just read Re Narumon Pty Ltd [2018] QSC 185 and there is so much in there to unpack, who really knows where to start. One important point that the Supreme Court confirmed, as the Commissioner of Taxation has done previously, is that the trust deed NOT the SIS Act provides the defining law in relation to BDBNs. This means that if the trust deed says that there is only one signature for a BDBN to be valid then that is the law for that particular fund. And if the trust deed, as in Re Narumon says that a person who has a member’s enduring power of attorney to do all things a member can do, then they have the power to extend an incapacitated member’s BDBN, even though the SIS Act does not allow this.