- Deed of variation not properly executed
- Lack of evidence that a reversionary lifetime complying pension had been put in place
- Validity of member executed binding nomination then reaffirmed by member’s enduring attorneys
A recent Queensland Supreme Court case gives us important guidance about operational aspects of super funds.
1. Background Information
The fund at the centre of this Court case is a SMSF – the John Giles Superannuation Fund which was established in 1992. It has a corporate trustee – Narumon Pty Ltd.
Mr Giles died aged 80 in June 2017 and was survived by his wife of 20 years (Mrs Narumon Giles), son aged 16 (Nicholas), four children from a previous marriage and his sister Mrs Roslyn Keenan.
Narumon and Roslyn had also been fund members but we don’t know how much money each had in the fund. Both were joint trustees of the SMSF until mid June 2018 when Roslyn resigned leaving Narumon as sole director so presumably Roslyn’s money will be transferred out of the fund.
They were also appointed Mr Giles’ enduring attorneys. However they did not assume this function until he was assessed by a suitably qualified medical expert to be mentally incapable of acting for himself in relation to financial, personal and health issues. They assumed this role in November 2013.
Why this case? The precise details are not discussed in the case but there had been a family provision claim concerning the distribution of Mr Giles’ non-super monies which had a net value of $200,000. On the other hand the SMSF had about $4 million in assets for Mr Giles the majority of which was claimed to be in a reversionary lifetime complying pension with the remainder in an accumulation account.
Narumon, as the trustee director, commenced the current proceedings because of uncertainty concerning the steps she should take as the fund’s sole director trustee especially in relation to:
- The validity of a 2007 deed of variation
- Missing documentation about the reversionary lifetime pension
- The validity of a binding death benefit nomination first executed by Mr Giles and reaffirmed by his attorneys
2. Deed of amendment not completed correctly
Since 1993 the fund’s trust deed had been amended a number of times – 1995, 1999, 2004, 2007 and 2014.
In addition, in 2000 there had been a change in the corporate trustee. It seems reasonable to conclude that this change occurred because of Giles and Narumon’s marriage.
There appears to be no issue with the change of trustee and the ’95, 99, ’04 and ’14 deed amendments.
A key issue in the case was the 2007 amendment which does not appear to have been executed correctly.
This is an extremely common situation and sometimes allows opposing sides in super fund disputes to seek to knock out a trust deed if it doesn’t suit their purposes.
The trustee proposed to the Court that this 2007 deed amendment be effectively ignored as nothing in relation to the matters to be dealt with turned on its provisions. The Court accepted this argument.
3. Reversionary lifetime pension documentation
In approximately 2005, Mr Giles commenced a reversionary lifetime complying pension. We can only presume that his purpose was to maximise his benefits under his old Reasonable Benefit Limit.
(Note that the pension was created under the 2004 amending deed not the disputed 2007 deed.)
The problem to be solved is that the original documentation for the pension including the nomination of Narumon as the revision are cannot be found after an extensive search. And documentation showing that the terms of the pension or the nominated reversionary also could not be found.
However the Court was satisfied with other information that was available – for example, fund accounts and actuarial work – and resolved that the pension did exist.
As we all know lost documentation in relation to investments is very common.
4. Validity of the binding death benefit nomination
We now come to the most complex issue that the Court had to address.
Some of the reasons for the complexity were as follows:
- Mr Giles had made five BDBNs between 2010 and 2013
- Was his last BDBN valid given it was not drafted in accordance with the 2004 amending deed?
- The BDBNs all had a auto-lapsing feature to them – that is, it lapsed after three years
- Could Mr Giles enduring attorneys use the powers gifted to them to re-affirm his last BDBN or even execute their own BDBN?
The Court decided the following points:
- The last BDBN was valid – yes, it was not in the terms required of the relevant trust deed in 2013 – however the deed said that the form of the binding nomination could be something other than that provided for in that deed
- The Court agreed with earlier decisions that SIS Reg 6.17A does not apply to the fund however some provisions were deemed to be contained in the deed
- The extension of this nomination by the enduring attorneys was accepted because the Court accepted that the trust allowed this to be exercised and the SIS Act did not prevent this as does the Queensland Powers of Attorney Act;
- The Court accepted that the extension of the BDBN by the enduring attorneys was considered to be a “financial matter” and that although Mr Giles had not permitted his enduring attorneys to enter into any transaction involving conflicts the Court agreed that their extension of the BDBN was not a conflict transaction – this is a complex matter and the application of this decision in future cases will turn on the facts of each case.
Supreme Court of Queensland case
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