Court case to determine critical EPOA, death benefit issues

The Supreme Court of Queensland has been asked to determine a number of issues which will impact on whether the death benefit can be paid.

The SMSF involved in the case was established in 1992 and the trust deed was subsequently updated several times, according to the CGW article.

“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,” said CGW.

As a result, the court needs to determine what the current rules of the SMSF are and who the current trustee is for the purposes of paying the death benefit, the law firm said.

“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,” CGW explained.

“Without this documentation, the trustee cannot, without risking breaching its fiduciary duty, pay the pension to the reversionary beneficiary.”

One of the other key issues to be determined by the court is whether two BDBNs made by the member’s attorneys, under an enduring power of attorney, are actually valid.

“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,” CGW explained.

“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 court finds that 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, the law firm explained.

There are further complications, CGW said, that also need to be dealt with to help the trustee.

“As there are missing change[s] 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,” said CGW.

“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 is yet to deliver its judgement on this case, according to CGW, but is expected to do so shortly.

While the issues involved in this case sound complex, CGW noted that they commonly 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,” it said.