This article explores the role of the enduring power of attorney to effectively make a binding death benefit nomination after a member of a self-managed superannuation fund (SMSF) loses capacity, and the validity of such a nomination.
What is an Enduring Power of Attorney?
An enduring power of attorney (EPOA) is the mechanism in which the attorney is granted the legal power to make decisions on behalf of the principal. This legal power continues even if the principal loses the capacity to make decisions related to personal/health matters and/or financial matters.
Examples of personal/health matters an attorney can make decisions about include:
- Where the principal lives
- Day-to-day issues of the principal
- Health-care decisions and end-of-life decisions of the principal.
Examples of financial matters an attorney can make decisions about include:
- Accessing bank accounts
- Selling the principal’s home
- Calling in investments.
In contrast, a Power of Attorney (POA) grants the legal power to make decisions on behalf of the principal in relation to financial matters and comes to an end if the principal loses capacity to make decisions.
What is a Binding Death Benefit Nomination?
A binding death benefit nomination (BDBN) is a nomination made by a member of an SMSF to direct some or all of the proceeds of the fund to a particular person.
Providing the trust deed allows for it, a BDBN may be made in favour of the following 1:
The matter of Narumon Pty Ltd  QSC 185
A recent case, Re Narumon Pty Ltd  QSC 185, has confirmed:
(a) That making a BDBN on behalf of a principal is a “financial matter” 4 under the EPOA
(b) An attorney may have the power to make a BDBN under an EPOA provided the EPOA allows for this, and that the trust deed governing the SMSF does not prevent the attorney from doing so.
(c) The nomination of a person other than a dependant, will not make the whole BDBN invalid. It will only invalidate the BDBN to the extent of the nomination to a non-dependant.
That said, in this case the Court was looking at a BDBN which renewed a previous BDBN (because it would lapse in time) rather than a new BDBN.
What does this mean for you?
An advantage of a BDBN is that it keeps the superannuation benefits outside of the estate. This reduces the total value of the estate available, which may be subject to a potential claim under a Family Provision application.
It may be important for your attorney to have the ability to make a BDBN on your behalf. If this is the case, the EPOA needs to be carefully drafted to ensure the power to make a BDBN is specifically included in your EPOA as well as associated details of the power, including the ability to enter into conflict transactions (if so desired).
A member’s assets in a SMSF should also be carefully considered when carrying out estate planning. The SMSF trust deed needs to be carefully reviewed in order to ascertain the member’s rights.
These principles are intended as a general guide only. As always, we recommend seeking advice tailored to your circumstances. Contact Mahoneys for expert advice relating to the legalities of SMSFs and EPOAs.
Section 55A of the Superannuation Industry (Supervision) Act 1993 (SISA) and regulation 6.22 of the Superannuation Industry (Supervision) Regulations 1994 (SISR)