How can a super fund member empower someone else to alter the terms of the member’s binding nomination to specify different death benefit nominees to receive the member’s fund entitlements?

Robert Stannett was the sole member of a self-managed super fund, the Robert Stannett Superannuation Fund.

iStock 637662426The trustee of the fund was Rentis Pty Ltd of which Robert was the sole director as is required for a tax law compliant fund.

In December 2020 Robert fell from a ladder. His resulting brain injury rendered him incapable of managing his own affairs including the fund.

Fortunately he had – prior to that accident – made a will and an enduring power of attorney appointing wife Valerie and brother Peter as his attorneys.

He also had made two binding nominations specifying who would receive his entitlements in the fund and the proceeds of insurance arising as a result of his death.

A valid binding death benefit nomination requires the trustee of a super fund to pay the member’s entitlements and death benefits precisely as directed.

It removes any discretion the fund trustee might otherwise have to consider which of the member’s dependents should receive the death benefits and in what portions, for example according to their financial resources and needs.

The rules of Robert’s fund had been updated in May 2019, a week prior to him making his EPA and prior to making the binding nominations, which update allowed binding nominations to be non-lapsing, ie they did not require regular renewal as is often the case.

The first binding nomination made by Robert in June 2019 directed 100% of his super benefits to Valerie, but if she did not survive him then $200,000 to each of his two children and each of Valerie’s two children with any balance to his estate.

Importantly, his second (and last) binding nomination directed 50% of his super benefits to Valerie, and 25% to each of his children Kylie and Blair.

After Robert had lost capacity in the fall, Valerie died in February 2021 and his brother Peter became his sole attorney.

No doubt to address the death of Valerie, Peter in his capacity as attorney made two new binding nominations on 9 May and 17 May 2022.

In the first, 40% of Robert’s super benefits were allocated to his children Kylie and Blair, and 10% to each of his stepchildren Sharyn and Ross.

In the second, Peter changed the allocation to 25% of the benefits to each of Kylie and Blair, with the remaining 50% to go to Robert’s estate to be distributed in accordance with his will, where it would go to a charity.

Both differed to what Robert had specified before he lost capacity.

Robert died in December 2022, and questions were raised as to whether the binding nominations made by Peter on Robert’s behalf were valid.

Justice Peter Applegarth noted that – at least in Queensland – it is settled law that the making of a binding nomination is the exercise of a financial power that an attorney can lawfully perform for their principal.

But had the EPOA been sufficiently drafted so as to include such a power?

There was an express term in Robert’s EPOA authorised Peter as his attorney to “renew any binding death benefit nomination made by me for any superannuation benefits or entitlement.”

In deciding whether the term “renew” included “making on different terms”, Justice Applegarth had to consider whether to adopt a narrow interpretation that excluded the latter meaning or one which appeared to suit the grantor’s intentions.

Given that the recently updated super fund rules meant binding nominations did not lapse at all, it was held that a narrow interpretation – which would result in the power being of no effect – should be avoided.

His honour preferred a more sensible interpretation of “renew” being the dictionary definition which is “restore to freshness” or “make like new”. That interpretation permitted Peter as attorney to make a new binding nomination that addressed fresh or changed circumstances.

It was further argued that Peter’s second binding nomination – of which gifted 50% of Robert’s super to charity – did not properly reflect Robert’s testamentary intentions.

His honour noted the matter before him only concerned whether Peter as attorney had the power to make  the last binding nomination, not with whether Peter should have exercised his power in the way that he did. That dispute was left for another day.

In accordance with what was found to be the more sensible interpretation, Justice Applegarth held that the last binding nomination was within Peter’s authority and was validly made.

This case demonstrates the importance of considering estate planning holistically and not making wills, powers of attorney and super fund nominations independently of each other.

Re Rentis Pty Ltd [2023] QSC 252 Applegarth J, 23 Oct 2023