Court decision sheds light on critical BDBN issues
A recent decision handed down by the Supreme Court of South Australia has clarified some important issues regarding the validity of binding death nominations.
In the case of Cantor Management Services Pty Ltd v Booth 2017, the deceased, Malcolm Cantor was the single member of an SMSF, while his brother, Christopher Cantor was the sole director and shareholder of the corporate trustee. The executor of the estate of Malcolm Cantor was his cousin, Louise Booth.
As Malcolm Cantor was frequently overseas, he had given an enduring power of attorney to his brother, Christopher Cantor, thereby permitting the brother to be appointed as sole director without contravening the definition of an SMSF, explained Townsends Business and Corporate Lawyers special counsel Michael Hallinan.
The critical issue in this case, Mr Hallinan said, was whether the BDBN was valid.
“If valid, then the death benefit was payable to the estate of the deceased member. If invalid, then the trustee would decide the allocation of the benefit. The validity turned upon the issue of whether the BDBN had been served on the corporate trustee,” he said.
“The BDBN had been signed by the member [in September 2012], and then left in the possession of the accountants for the superannuation fund, which was an SMSF, at their office which was also the registered office of the corporate trustee of the superannuation fund.”
The executor, Louise Booth, commenced legal proceedings in South Australia for declarations that certain land situated in Queensland was an asset of the SMSF and the BDBN nomination made in September 2012 was valid.
In the alternative, the executor argued that she should be appointed trustee of the SMSF instead of the current corporate trustee.
In the BDBN form completed in September 2012, Malcolm Cantor had nominated his legal personal representative as the beneficiary. While Christopher Cantor was the enduring power of attorney and therefore, the legal personal representative of the deceased during his lifetime, an enduring power of attorney is terminated upon the death of the donor.
“[Therefore], the term ‘legal personal representative’ could only mean the executor or administrator of the estate of Malcolm Cantor, the deceased member – namely the first cousin,” said Mr Hallinan.
The court held that in order for a death benefit nomination to be valid and binding under the terms of the trust deed of the SMSF, it had to be ‘given to the trustee’. So the key issue was whether the BDBN had been given to the trustee, said Mr Hallinan.
The sole director of the corporate trustee, he explained, argued that as neither the BDBN had been provided to the director nor had the accountants been expressly authorised to accept and hold the BDBN on behalf of the corporate trustee, the BDBN had not been served on the corporate trustee.
“The Court did not accept the argument put by the corporate trustee. The Chief Justice held that it was sufficient to constitute service on the corporate trustee for the BDBN to be held by the accountants of the SMSF at the registered office of the corporate trustee.”
Miranda Brownlee is the deputy editor of SMSF Adviser, which is the leading source of news, strategy and educational content for professionals working in the SMSF sector.
Since joining the team in 2014, Miranda has been responsible for breaking some of the biggest superannuation stories in Australia, and has reported extensively on technical strategy and legislative updates.
Miranda also has broad business and financial services reporting experience, having written for titles including Investor Daily, ifa and Accountants Daily.