29/03/2017

Does an enduring power of attorney have the power to make a SMSF binding death benefit nomination?

Romeo has appointed his son Dante as his enduring power of attorney.  Since his wife Juliet’s death, Romeo is the sole member of the self managed superannuation fund that he and Juliet set up.  Romeo is over 60 and has three children. He has a binding death benefit nomination giving his super death benefits to his estate, where the benefits will be divided equally among his children.

When Romeo is admitted to a nursing home with the beginnings of dementia, Dante changes the death benefit nomination and gives the whole amount to himself.  When Romeo dies, Dante takes the super and his siblings miss out.

Could this have been avoided?

It is generally accepted that an unrestricted power of attorney gives the attorney the right to change the grantor’s death benefit nomination.

Section 9 of the Powers of Attorney Act 2003 (NSW) provides that the attorney is able do anything that the grantor may lawfully authorise an attorney to do. Without express restriction, the default position is that an attorney can change a binding death benefit nomination, ultimately controlling where fund assets are paid when the member who granted the power of attorney dies.

The inclusive wording of the Powers of Attorney Act, mirrored in most other Australian states, confers unbridled power upon the attorney. The rationale of this broad control is to ensure an attorney can manage the affairs of the grantor without difficulty.

Superannuation law does not currently afford any protections against attorneys tampering with binding death benefit nominations. This means that without limitation, nothing prevents Dante from dealing with Romeo’s SMSF binding death benefit nomination.

Lack of control over an attorney’s power is a concern, and is particularly significant where standardised ‘off-the-shelf’ SMSF products are being used to maintain the fund.

The potential for misuse by attorneys controlling SMSFs has resulted in the Australian Law Reform Commission recommending proposed legislative changes to protect members regardless of the fund trust terms.

In the meantime, your SMSF may want to adopt protections to safeguard your fund from the possibility of an attorney dealing with your binding death benefit nominations.

Protections to discuss with your lawyer can include incorporating an express limitation in the enduring power of attorney document in relation to binding death benefit nominations, or incorporating restrictive provisions in your SMSF Trust Deed.

You have a Will, so do you still need to worry about a binding death benefit nomination?

Yes – absolutely. A death benefit nomination is a formal direction given to the trustee of a superannuation fund by a member. The document nominates a party or parties to whom the member wishes to gift their super upon their death.

Superannuation is not an asset of your estate because it is held by a separate party:  the trustee of your fund.  As such it must be dealt with separately.  A binding death benefit nomination is required in addition to your Will to confirm where your superannuation death benefits go.

If you would like your SMSF Trust Deed and/or Enduring Power of Attorney reviewed to reduce the risk of attorney abuse, please contact Townsends Business and Corporate Lawyers on (02) 8296 6222 or email our Help Desk with your inquiry.