Speaking at the SMSF Summit, Cooper Grace Ward partner Scott Hay-Bartlem said that the Re Narumon case in which the court upheld the renewal of an existing BDBN highlighted some of the important considerations around conflict with enduring powers of attorney.
“We now have a decision which says that attorneys can do binding nominations, but that may not always be a good thing,” Mr Hay-Bartlem said.
“One really important issue that needs to be considered is what attorneys are able to do under an enduring power of attorney.”
Mr Hay-Bartlem said that his firm is coming across a lot of enduring powers of attorney with very wide conflict clauses at the moment, which may be giving enduring powers of attorney too much power.
“Conflict clauses have become really important in enduring powers of attorney; they have been for a long time, but they’re especially important now,” the partner said.
“Every state has limits on what attorneys can do if there’s a conflict, but if you absolve any attorney of any conflict in the enduring power of attorney, they can do anything despite benefitting themselves.”
In one particular case involving a daughter whose father had gone into a nursing home, according to Mr Hay-Bartlem, the stepmother was the attorney and the other trustee of the SMSF and tried to take the father’s share of the money out of the fund.
“Dad has gone into nursing care and the stepmother decided to move interstate to live with her daughter, so she withdrew $2 million from their SMSF because that was used to buy her a new place. The money from the SMSF was half hers and half of it was his,” the partner explained.
“Now there were no conflict provisions in that enduring power of attorney, so she had to repay it. If the power of attorney said you can do whatever you want to despite the conflict, could we have got the money back? Potentially not.”
While SMSF clients need to have a conflict clause in the power of attorney that is wide enough to allow them to do what they want the attorneys to do, it should not be too wide either, the partner warned.
“I’m seeing very few that target that middle ground, that are wide enough to let us do things, but not so wide we’re going to have problems down the track,” Mr Hay-Bartlem said.
An EPOA is governed by State laws and will be problematic from state to state. With safety, security and certainty required in all SMSF dealings to give a replacement Trustee under an EPOA carte blanche is dangerous. The trust deed should determine whether the replacement trustee may update an incapacitated member’s BDBN. It’s pretty obvious that in 90% of cases there should be no ability to update. Smarter deeds will have a SMSF Living directions providing binding directions for the Trustee in respect of an incapacitated member. Any time you have to go to court only the lawyers win.