Death benefit nominations

The legal framework

7.17     The payment of the superannuation funds of a member on the member’s death is a matter that is determined by the governing rules of the superannuation fund. As a matter of trust law, a trustee is not able to delegate the exercise of their powers under the trust, except to the extent permitted under the trust instrument itself, or by virtue of legislation.[12] Similarly, as a general rule, the beneficiaries cannot direct the trustee how to exercise a discretionary power.[13]

7.18     Part 3 of the SIS Act prescribes operating standards for funds, including in relation to benefit payments.[14] The standards themselves are set out in the Superannuation Industry (Supervision) Regulations 1994 (Cth) (SIS Regulations). With respect to APRA-regulated superannuation funds or approved deposit funds—collectively referred to as superannuation entities—the payment standards are set out in pt 6 of the SIS Regulations, including in relation to payment on the death of a member.

7.19     As the relevant Australian Prudential Regulation ‘Prudential Practice Guide’ explains, there are five different death benefit arrangements, ‘each with its own requirements and consequences’:

(a)     automatic reversionary benefit (where trustee exercises no discretion);

(b)     non-binding nomination (where there is full trustee discretion);

(c)     binding nomination (under section 59(1A) of the SIS Act);

(d)     non-lapsing nomination (under section 59(1)(a) of the SIS Act); or

(e)     complete discretion of the trustee if none of these nominations has been made and the reversionary benefit is not applicable.[15]

7.20     Section 59(1A) of the SIS Act provides that the governing rules of a superannuation entity may require a trustee to provide any benefits in respect of the member on or after the member’s death to the legal personal representative or a dependant or dependants of the member, so long as the notice complies with any conditions contained in the SIS Regulations.[16]

7.21     Section 59(1A) of the SIS Act is an enabling provision and the governing rules of superannuation funds do commonly provide for funds held by a member to be paid on the person’s death in accordance with a binding nomination of the member. The governing rules of the fund may, however, stipulate requirements that are more restrictive.[17] The section also does not exclusively cover the field in which a member can give a trustee a nomination.[18]

7.22     If the governing rules of a fund permit such a nomination, reg 6.17A(4) of the SIS Regulations states that the trustee must pay a benefit to the person or persons mentioned in the notice if the matters set out are complied with:

(a)     the person or each of the persons, mentioned in the notice is the legal personal representative or a dependant of the member; and

(b)     the proportion of the benefit that will be paid to that person, or to each of those persons, is certain or readily ascertainable from the notice; and

(c)     the notice is in accordance with subregulation (6); and

(d)     the notice is in effect.

7.23     The SIS Act defines ‘legal personal representative’ to mean ‘the executor of the will or administrator of the estate of a deceased person, the trustee of the estate of a person under a legal disability or a person who holds an enduring power of attorney granted by a person’.[19] ‘Dependant’ in this context is defined as meaning the spouse of the person, any child of the person, and any person with whom the person has an interdependency relationship.[20] ‘Spouse’ is given an extended definition and includes same-sex and de facto relationships, registered or otherwise.[21] ‘Interdependency relationship’ is also defined as a close personal relationship of people who live together, where one or each of them provides the other financial support and one or each of them provides the other with domestic support and personal care.[22]

7.24     Regulation 6.17A(6) sets out the formal requirements for a nomination under reg 6.17(4). It must:

  • be in writing;

  • be signed and dated by the member in the presence of two witnesses, each of whom have turned 18, and neither of whom is mentioned in the nomination; and

  • contain a declaration signed and dated by the witness stating that the notice was signed by the member in their presence.[23]

7.25     The trustee is also required to give to the member ‘information that the trustee reasonably believes the member reasonably needs for the purpose of understanding the right of that member to require the trustee to provide the benefits’.[24]

7.26     A notice under reg 6.17(4) ceases to have effect at the end of three years after the day it was signed, or a shorter period fixed by the governing rules,[25] but can be renewed, amended or revoked.[26]

7.27     To ‘amend’ or ‘revoke’ a notice, the member is required to provide a notice complying with reg 6.17A(6).[27] However, to ‘confirm’ a notice, a lower formal threshold is required.[28] To ‘confirm’ the notice, the member is only required to give the trustee ‘a written notice, signed, and dated, by the member, to that effect’.

7.28     In addition to a binding death nomination, some superannuation funds also permit a member to make a non-lapsing binding death nomination. This nomination is made under s 59(1)(a) of the SIS Act. A non-lapsing binding death nomination may only be made if permitted by the trust deed and with the active consent of the trustee.

7.29     When a binding nomination lapses, the nomination becomes non-binding. In such a case, the trustee’s discretion with respect to death benefits is governed by the fund rules:

When the trustee’s discretion is exercised, members of industry superannuation funds or their dependants may contest the distribution. They are sometimes successful. The tribunal then sets aside the trustee’s decision and substitutes its own decision. The tribunal can also scrutinise the validity of a binding nomination and may substitute its own decision if it so decides.[29]

Disputes

7.30     The SCT was established under the Superannuation (Resolution of Complaints) Act 1993 (Cth) and deals with complaints about superannuation, excluding SMSFs. Such complaints include questions concerning death benefit nominations and the trustees’ exercise of discretion in relation to nominations. As the Tribunal explains:

Key issues that arise for trustees when dealing with death benefit distributions include who should be considered as potential beneficiaries of a deceased member’s death benefit and, if there are competing claims made by a number of potential beneficiaries, what must be taken into account when assessing who should be paid the death benefit and in what proportion. These are often complex issues that require careful consideration of multiple factors such as the degree of dependency of the potential beneficiary on the deceased member and the role and purpose of superannuation.[30]

7.31     The discretionary nature of the payment of death benefits in many cases gives rise to many complaints to the SCT.[31] The Tribunal reported that, between January and March 2017, complaints concerning the distribution of death benefits comprised the ‘biggest single complaint category’, amounting to 21.5% of complaints received.[32]

7.32     The Tribunal has produced a guide in relation to its procedures for dealing with such complaints.[33] Where a nomination is binding, the trustee has no discretion to override it.[34] A challenge may only be made, for example, on the basis of the validity of the nomination, including a lack of legal capacity.[35]

The potential for abuse

7.33     BDBNs are often made in the context of broader estate planning and, in particular, a desire to ensure the most tax effective structure for succession.[36] The inclusion of BDBNs in estate planning is encouraged: if superannuation is not considered, ‘the family members inevitably will end up in conflict’.[37]

7.34     BDBNs may also be used to limit or manage any potential claims on the deceased’s estate. Where the member’s funds are paid to a dependant pursuant to a BDBN, those funds do not form part of the member’s estate.[38] In all states and territories, except New South Wales, such property is not available under family provision laws. If a member’s superannuation death benefit is substantial, the ability to remove the funds from the operation of family provision laws gives a member significant control after death. By contrast, in New South Wales, superannuation death benefits may be classified as ‘notional estate’ and brought within the jurisdiction of the court for the purposes of making a family provision order.[39]

7.35     The nominations covered by reg 6.17A(4) can only be made to the legal personal representative or ‘dependants’. A nomination to a dependant could potentially be made under pressure. Although the person nominated in the notice cannot be a witness, the range of ‘dependants’ is still quite wide. Given that, for example, there are indications that financial abuse is committed by adult children,[40] and these are within the set of ‘dependants’ in the context of death benefit nominations, there is potential for contrivance for a nomination preferring a child—so long as there was a separate witness to satisfy reg 6.17A(6).

7.36     Similar pressure may be imposed to encourage a nomination to the estate so that the superannuation funds form part of the estate of the deceased to be governed by their will or intestacy.

7.37     The Law Council of Australia commented that, given the value of many members’ death benefits, ‘there is an unfortunate incentive to manipulate a member’s nomination’.[41] State Trustees Victoria described as ‘insidious’, ‘where a third party manipulates a person into nominating them as a binding death benefit nominee’:

It is unclear to what extent this happens but it should be considered a potential issue to be managed. Given that the binding death benefit nomination only takes effect after the death of the principal, disproving that the nomination was not valid would be very difficult.[42]

7.38     Pressure to make a will may also include pressure to make a binding death benefit nomination, as evident in a case study provided by the Queensland Law Society (QLS). A woman in her 70s, ‘V’, attended the office of the relevant law firm, brought by her ‘partner’ to make a will. The firm considered that V did not have legal capacity to make a will. It became apparent that there was also a superannuation nomination involved and the firm was concerned as to possible abuse of ‘V’ to make it:

it became apparent through our discussions that V had made a binding death benefit nomination in relation to her superannuation to her ‘partner’. Her superannuation, as far as we could tell was her largest asset. V had a copy of the nomination with her (given to her by her partner to bring into our meeting). The nomination had been made within the two weeks prior to our meeting. This concerned me as although the capacity to make a binding death benefit nomination is the ability to enter into a contract, and not the same as making a will, it was doubtful that V had the capacity to understand the nature and effect of that decision. Further it was probable that she was told to sign the nomination by her partner in front of the two witnesses.[43]

Clarifying and reviewing the law

Recommendation 7–1               The structure and drafting of the provisions relating to death benefit nominations in ss 58 and 59 of the Superannuation Industry (Supervision) Act 1993 (Cth) and reg 6.17A of the Superannuation Industry (Supervision) Regulations 1994 (Cth) should be reviewed. The review should consider:

(a)         witnessing requirements for making, amending and revoking nominations;

(b)         the authority of a person who holds an enduring power of attorney in relation to the making, alteration and revocation of a nomination;

(c)         whether a procedure for the approval of a nomination on behalf of a member should be introduced; and

(d)         the extent to which other aspects of wills law may be relevant.

7.39     Recommendation 7–1 tackles a key problem in relation to BDBNs, namely the uncertainties and ambiguities that arise in the construction of ss 58 and 59 of the SIS Act and reg 6.17A of the SIS Regulations. The wider context concerns the equitable rules about trusts, and the extent to which beneficiaries can direct trustees in the exercise of their powers, through express provision in the trust deed and/or as authorised or required by legislation.

7.40     In the 2016 decision, Retail Employees Superannuation Pty Ltd v Pain, Blue J identified the problems in relation to the existing provisions and suggested that it was ‘highly desirable’ that the particular provisions ‘be reviewed by the Commonwealth and recast’.[44] In particular, Blue J identified ambiguities as to which aspects of reg 6.17A of were prescriptive for a notice to pay a benefit to be effective.[45] Blue J referred to the ‘strong desire by members of superannuation funds to be able to make non-lapsing nominations’, but said that it was ‘a question of policy whether and on what terms binding nominations are permitted and this is exclusively a matter for the Commonwealth Parliament and the Commonwealth Government’.[46] He considered that there were several ‘policy options’:

One policy option would be to leave binding nominations to be governed exclusively by the governing rules of the superannuation fund, largely equating the position to that applying to wills under the general law in which (subject only to implied revocation on marriage) a will operates indefinitely until revoked. Another policy option would be to permit indefinite nominations subject to legislated manner and form requirements to ensure that a nomination is intended to be made by a member on an informed basis. Another option would be to provide that all indefinite nominations lapse on the occurrence of a legislatively defined event or events (such as marriage). Another option would be to provide that all nominations lapse on the effluxion of a legislatively defined period of time. Whichever policy option is adopted, it is desirable that it be a simple universal rule applying to all binding nominations as opposed to the current situation involving multiple alternatives adopted by superannuation fund trustees to permit their members to make fixed term or indefinite binding nominations in compliance with the legislation.[47]

7.41     The ALRC considers that such ambiguities need to be resolved in order to include consideration of the specific matters raised in the Discussion Paper and in this chapter.

7.42     The ability to make a BDBN, like the ability to make a will, is a key aspect of advance planning and an exercise of autonomy by older people and fund members generally. Both the language and types of nominations vary greatly. The expanding scope and value of superannuation means that clarity in understanding from the perspective of fund members and trustees is important.

7.43     Recommendation 7–1 adopts Blue J’s suggestion for a review. Once the review is completed, improving the understanding of financial advisers and lawyers, as well as the information provided to superannuation fund members can be developed.

7.44     The review could be conducted by the Treasury as the Australian Government agency responsible for advising on broad features of retirement income policy, including the objectives, adequacy and overarching framework and design of the superannuation system.[48]

7.45     The review should include key government agencies, such as the APRA, the ASIC and the ATO. It should also include key stakeholder groups, such as: the Law Council of Australia; the Financial Planning Association of Australia; CPA Australia; and consumer groups, such as the SMSF Association (SMSFA), the Combined Pensioners and Superannuants Association and the Association of Independent Retirees.

Reducing elder abuse

7.46     The ALRC considers that a number of strategies need to be adopted to assist in combating potential abuse. One is to ensure that the information that members are given about their rights in relation to BDBNs is clear. Another is to ensure that the advisers who are likely to be involved in the preparation of BDBNs are alert to the issues of potential abuse. Another is to consider other integrity measures, such as witnessing, to support the person in the exercise of their choice.

Information for members

7.47     Regulation 6.17A(3) of the SIS Regulations provides that the trustee must give to the member information ‘that the trustee reasonably believes the member reasonably needs for the purpose of understanding the right of that member to require the trustee to provide the benefits’.

7.48     An area of confusion that would benefit from clarification is the extent to which a nomination is ‘binding’ in the sense of being lapsing or not. As one solicitor commented:

It is more important for a person making a death nomination to have the assurance that the nomination is binding and that it will continue to be binding even should they lose capacity. A binding nomination should therefore be binding unless expressly revoked or, at the very least, the principal must have the option to make a non-lapsing binding nomination.[49]

7.49     The clarification of the law, pursuant to Recommendation 7–1, will provide a firmer foundation for advice by trustees to members as required by reg 6.17A(3), and for the information that is provided through other avenues, such as the SCT. Websites of superannuation funds and the Tribunal may be for many people the natural first port of call in relation to locating information about death benefit nominations.

7.50     The approach to improving the provision of information to members needs to be multi-faceted and include recognition of the role of financial advisers, who are often involved in the process of assisting a member. Hamilton Blackstone Lawyers pointed to the ‘crucial role’ of a financial adviser in this situation:

in a large proportion of cases where a person has a relationship with a financial adviser, binding death benefit nominations are completed following the provision of advice by that adviser. Furthermore, advisers generally assist in the completion and execution of binding death benefit nominations. It is critical that this continues to be the case.[50]

7.51     The Financial Planning Association of Australia commented similarly, saying that a financial planner is more important than a lawyer in this context:

Estate planning and superannuation are core subject areas in financial planning degrees and the Certified Planner Certification Program. Estate planning is not a core requirement of law degrees or Continuing Professional Development programs for legal practitioners.

While a person is permitted to make a binding death benefit nomination without involving a solicitor, Australians who seek financial advice usually establish binding death benefit arrangements with the assistance of their professional financial planner.[51]

7.52     The SMSFA expressed a concern with respect to SMSFs, suggesting that SMSF advisers have ‘death benefit nomination templates’ which are used with their clients:

This is a grey area with both accountants and financial planners providing these documents to client perhaps inappropriately and without expertise. In this regard there may be merit in placing the emphasis of death benefit nominations as part of an estate planning specialist process, as wills are. Greater awareness and education as to the legal risks around poorly constructed and executed BDBNs may encourage more SMSF trustees and their advisors to seek legal advice on BDBNs (and reversionary pensions).[52]

7.53     Given the key role that financial planners play in relation to superannuation advice, improving their understanding of the way that pressure to make or amend BDBNs may be brought to bear on older people is one strategy for combating elder abuse.

Witnessing

7.54     The ALRC Discussion Paper included a proposal that the witnessing requirements for BDBNs should be equivalent to those for wills.[53] This was supported by stakeholders. For example, the Institute of Legal Executives (Victoria) commented that ‘[w]e strongly agree that these should be executed in the same manner as Wills, being an essential part of the estate plan’.[54]

7.55     The requirements in relation to witnessing for BDBNs are set out in reg 6.17A. As noted above, reg 6.17A(6) of the SIS Regulations requires that the notice making a BDBN must be signed by the member in the presence of two witnesses. The witnesses must be at least 18 years old and neither can be a nominee of the funds. The BDBN must also contain a declaration signed and dated by the witnesses that the notice was signed by the member in their presence.

7.56     These requirements are similar to wills and perform an analogous function. The witnessing requirements for wills are found in state and territory legislation, the essential elements of which are that there be two witnesses present at the same time and that what they are witnessing is the testator’s signature, or the acknowledgment by the testator of their signature.[55] The requirement in reg 6.17A(6)(b)(ii) of the SIS Regulations that the witness not be a person ‘mentioned’ in the notice is similar to the witness-beneficiary rule for wills,[56] although given the modification of the latter rule, the regulation is stricter. Where the witness-beneficiary rule avoids the gift to the beneficiary, a failure to satisfy reg 6.17A(6)(b)(ii) would be a ground of invalidity of the notice. The Law Council of Australia observed that the validity of the nomination is an issue that regularly arises in relation to death benefit nominations.[57]

7.57     The formal requirements of reg 6.17A(6) may also be considered to be more stringent than wills. For example, unlike in relation to wills, there is no ‘dispensing power’ to forgive non-compliance with formalities.[58] In the context of wills, such matters are only raised post-mortem as part of the probate process. In the context of BDBNs, the ALRC does not suggest that similar powers should be introduced. The trustees of the fund may have an opportunity to identify issues of non-compliance with formal requirements during the member’s lifetime, though it may not become clear until the person’s death that a nominated dependant is in fact not a dependant.[59]

7.58     Several stakeholders suggested that the witnessing process could be made stricter. State Trustees Victoria, for example, suggested that the risk of misuse of BDBNs could be minimised by requiring there be witnesses ‘to verify that the person appeared to have capacity when the nomination was made’.[60]

7.59     Another suggestion was to require independent legal advice. The QLS, for example, suggested this, ‘[g]iven the ease with which binding death benefit nominations can be made and the risk to that asset’.[61] Law firm, Carroll & O’Dea, also suggested that ‘it might be worthwhile to require a member to obtain a certificate of independent legal advice prior to making a superannuation death benefit nomination’, but noted a number of questions relevant to this:

What would the legal advice entail?

Would this advice be required each and every time a member completes a death benefit nomination?

What would be the effect if a member failed to obtain legal advice?[62]

7.60     The Law Council of Australia also noted that lapsing BDBNs may not necessarily need to be treated the same as non-lapsing nominations. In this context the Council did not support a requirement of independent legal advice:

given that the provision of a certificate for superannuation nominations would mean that every time a person made a nomination (some retail funds require a nomination every three years) with respect to his or her superannuation it would be necessary to see a lawyer.[63]

7.61     The Law Council of Australia commented that, while solicitors are often involved with the preparation of wills, this is much less the case in the preparation of nominations. Abuse could be reduced ‘if a solicitor is involved and the direction of the death benefit is to the estate’.[64]

7.62     Even if witnessing were made stricter, Rodney Lewis observed, from cases involving wills, that ‘important witness evidence routinely comes from the solicitor who prepared it, the medical practitioners who have attended the testator, the friends and relatives who have been in contact with the person before the signing of the document’.[65]

7.63     In its 2013 Succession Laws Report, the Victorian Law Reform Commission explored other integrity measures for witnesses directed towards protecting ‘older and vulnerable will-makers from undue influence by potential beneficiaries or others’. Two specific measures were explored: requiring a witness to certify that the will-maker had the necessary mental capacity to sign their will, and signed the will freely and voluntarily; and requiring a medical practitioner to witness and assess the person’s capacity and freedom of will. Neither was adopted as a recommendation.[66]

7.64     The ALRC considers that the witnessing requirements of reg 6.17A(6) are set at an appropriately high level to act as a validating measure for a BDBN, similar to that performed for wills. Witnesses to wills are only required to attest that the testator signed the will in their presence. The ALRC concludes that adding witnessing requirements to the making of a BDBN is unnecessary. Obtaining full and independent advice about such matters may be constructive as part of best practice estate planning, but it would be unduly burdensome to add the requirement of independent legal advice to the making of a BDBN. Improving the understanding of financial advisers and lawyers about the dynamics of elder abuse and the ways that this may present in the context of pressure to make or change advance planning instruments is a supportive approach and part of wider strategies to combat elder abuse. Financial advisers and lawyers also need to be sensitive to issues of impaired decision-making ability and how best to support clients in such cases.

7.65     The ALRC notes that the formal requirements for confirmation of a nomination are set at a lower level than for making, amending or revoking a nomination. This is tied up with the issue about lapsing nominations. As a matter of policy, however, this is an area where the formal threshold is lower and therefore consideration of this difference would be an appropriate matter to be analysed as part of the review in Recommendation 7–1.

Death benefit nominations and substitute decision makers

7.66     Specific matters that need to be considered in the recommended review are discussed below.

Should enduring attorneys be able to make BDBNs?

7.67     In the Discussion Paper, the ALRC proposed that donees of enduring powers of attorney should not be able to make a BDBN on behalf of a member. The legal position on this issue was considered briefly in the ALRC Report, Equality, Capacity and Disability in Commonwealth Laws,[67] where it was pointed out that, as a matter of law, there does not appear to be any restriction in the SIS Act or SIS Regulations that would prevent a person acting under a power of attorney from completing and signing a BDBN.

7.68     In Determination D07–08\030, the SCT stated that, in principle, an enduring power of attorney would permit an attorney to complete and sign a BDBN on behalf of the member. As the Tribunal did not decide the matter on the basis of the binding nomination, however, its comments are not of direct application. Hence, the Law Council of Australia observed that ‘[w]hether the scope of an attorney’s authority extends to making a nomination remains a matter of debate’.[68]

7.69     In the Equality, Capacity and Disability Inquiry, the Law Council of Australia pointed to the different practices of funds:

some funds accept a nomination by a person holding an enduring power of attorney granted by the member, generally without inquiring as to the wishes of the member. Some funds do not accept a nomination by a person holding an enduring power of attorney, with the result that binding nominations cannot be made by these members.[69]

7.70     The Law Council of Australia suggested that superannuation funds would adopt a more consistent approach if there were greater clarity in legislative provisions governing superannuation death benefits.[70]

7.71     As explained in the Equality, Capacity and Disability Report, the policy issue is a difficult one, given the difference between a nomination, as a lifetime act, and its effect, which is will-like in nature—as it affects property after the death of the member. The Law Council of Australia agreed with the ALRC that the main issue concerning BDBNs is that there is currently no clear policy position on whether a nomination should be considered similar to a will or simply a lifetime instruction in relation to a person’s assets. The Council also agreed with the ALRC’s analysis that nominations are will-like in nature and they should be treated in policy terms ‘similarly to wills’.[71]

7.72     In this Inquiry, the ALRC focused on this issue again and proposed that the SIS Act and SIS Regulations ‘should make it clear that a person appointed under an enduring power of attorney cannot make a binding death benefit nomination on behalf of a member’.[72]

7.73     The ALRC acknowledges that the proposal to prohibit an attorney, acting under an enduring power, from making a BDBN does raise policy challenges in the context of the three-year limit on nominations under reg 6.17A(7).[73]

7.74     For example, a member may make a BDBN and then subsequently lose legal capacity. If the attorney does not have the power to renew the BDBN when it lapses after three years, the principal’s superannuation funds may be distributed:

  • in a way that the member had not intended;

  • in a manner less ideal for tax purposes when compared with the lapsed binding death nomination; or

  • in a manner that results in the funds forming part of the estate of the member which may be subject to certain creditors’ claims.[74]

7.75     A number of stakeholders provided very informed submissions on the matter of BDBNs: the Law Council of Australia, several law firms, financial planners and chartered accountants. With respect to the existing position in relation to BDBNs, a common point was that the making of a BDBN should be seen as different from the renewal of a BDBN. In this context there is a problem of the ‘lapsing binding death benefit nomination’. Reg 6.17A states that a notice under 6.17A(4) ceases to have effect after three years. But there can also be ‘non-lapsing binding death benefit nominations’, if superannuation fund rules permit them.

7.76     Where BDBNs lapse, a specific policy issue is whether a person who is an attorney under an enduring power, should be able to confirm the nomination so that it continues to have validity—that this is different from making a BDBN and it continues the autonomous choice of the member. Where there is no BDBN there are two distinct issues: the legal issue of whether a person who is an attorney under power can make a nomination in exercise of that power; and the policy issue of whether they should be able to do so.

7.77     Richard Williams and Brian Herd explain that the legal issue contains several sub-questions. First, the issue needs to be considered under state and territory enduring powers of attorney (EPOA) legislation—for example, whether a power in relation to ‘financial affairs’ encompasses the making of a BDBN; and, secondly, under the specific terms of the instrument of appointment itself. Further, the attorney under power, as a fiduciary, would be subject to restrictions as a matter of law on the way any such power may be exercised. Hence, as Williams and Herd conclude:

Even if an attorney under an EPOA has a sufficiently wide scope of authority to act on behalf of their principal in respect of superannuation, the provision by the attorney of a notice to a superannuation trustee that would have the effect of conferring a benefit on the attorney, or increasing the value of such benefit would (absent any special condition to the contrary) clearly amount to a breach of the attorney’s duties. The revocation of an existing nomination, in order to increase the likelihood of a trustee making payment of a death benefit to the member’s legal personal representatives, in circumstances where the attorney is a beneficiary under the member’s will or on intestacy, would give rise to the same issue.[75]

7.78     A separate issue is the extent to which superannuation laws allow for this. As Williams and Herd explain, reg 6.17A stipulates two distinct acts to be done by a member: the signature of the notice by the member, and the giving of the notice to the trustee. While they suggest that ‘it is arguable that the acts of signature and of giving the notice are capable of being performed by an attorney’, the matter is not ‘beyond doubt’.[76] Carroll & O’Dea said, similarly, that the question of whether an attorney’s authority extends to making a nomination ‘remains a matter of debate’.[77] Hamilton Blackstone Lawyers stated their view that the SIS Act and SIS Regulations ‘already do not permit attorneys to make binding death nominations on behalf of the principal’ and welcomed ‘the opportunity for further clarity to be provided on this aspect’.[78]

7.79     Williams and Herd also note the difference in the requirements of making and confirming a nomination and suggest that:

This may explain why some practitioners suggest that an attorney under an EPOA may renew a nomination, but not make, revoke or alter a nomination. In the absence of any express statement to that effect in the legislation, that view does not appear to be sufficiently supported by the terms of regulation 6.17A itself.[79]

7.80     Carroll & O’Dea commented that ‘superannuation funds would adopt a more consistent approach if there were greater clarity in legislative provisions governing superannuation death benefits’.[80] Uncertainty is ‘undesirable’, and is ‘a peculiarity that needs resolution’, because, as Williams and Herd conclude:

For many persons, a binding death benefit nomination will form an integral part of their estate planning, as it should ensure (or, at least, increase the likelihood) that the relevant assets pass as the member intends.[81]

7.81     In the Discussion Paper, the ALRC expressed the policy position that an attorney should not be able make a BDBN on behalf of a member and that the legislative uncertainty should be clarified in line with this. This was based on the analogy made between BDBNs and wills and, as wills can only be made by a person with legal capacity, the ALRC concluded that a person holding an enduring power of attorney should not be able to sign a binding death benefit nomination on behalf of the member. As the role of an enduring attorney is one focused on the lifetime transactions and needs of the person, a point also emphasised in the submission of law firm Carroll & O’Dea,[82] the ALRC concluded that it was not appropriate for such a person to make a binding death benefit nomination that was will-like in effect.

7.82     The Law Council of Australia was concerned about the lack of clarity as to whether an attorney’s power extended to the making of a BDBN and considered that it would be desirable if the SIS Act and SIS Regulations were amended to make clear ‘that a person appointed under an enduring power of attorney cannot make (confirm, amend or revoke) a BDBN (or a non-lapsing nomination or a non-binding nomination) on behalf of a member’. However the Law Council of Australia stated an exception: ‘unless this is expressly authorised in the document by specific reference to the making of BDBNs (or other nominations)’:

At present this is an area of significant confusion for superannuation funds, with some funds allowing the holder of an enduring power of attorney to make, amend or revoke a BDBN, and other funds not allowing this. The issue has not been tested before the Courts. Conflict issues also commonly arise, where the holder of the enduring power of attorney is an individual who would benefit from the making, amendment or revocation of a BDBN. Such issues can be addressed by the inclusion of specific authorising provisions in the relevant power of attorney, but there may then be further complexity with the correct drafting of such documents. In any event, the authorisation should be express, and should include the ability to nominate the attorney themselves and to amend the BDBN (or other nomination) in their own favour if this is desired by the member.[83]

7.83     The issue of express authorisation was also raised by the Financial Services Council, which said that a person under an EPOA should only be able to make or renew a BDBN on behalf of a member if expressly authorised by the EPOA.[84] Chartered Accountants Australia and New Zealand made a similar comment, but added: ‘we would also include a person appointed under a general power of attorney in this prohibition unless the power the power had been specifically granted’.[85]

7.84     The issue of express authorisation in an enduring power of attorney is a matter that should be considered as part of the review set out in Recommendation 7–1. While the ALRC expresses a policy position against a person under an EPOA being able to make a nomination on behalf of the member, the ALRC did not consider the question of express authorisation in the EPOA itself. This is a matter that may require more investigation. For example, the ALRC also proposes that a process for approval of a nomination be considered as part of the recommended review.

7.85     A similar issue may be raised in relation to someone appointed by a tribunal as a financial administrator of a person who has lost, or who has diminished, decision-making ability.[86] If a financial administrator is given wide powers in relation to financial matters, then the analysis of this chapter may also apply to a financial administrator in such a case.[87]

7.86     The ALRC also acknowledges that the policy question, however, is a wider one and needs to address not only whether an attorney under an EPOA, or a financial administrator appointed with respect to a person’s financial affairs, should be able to make a nomination, but also the other situations addressed in reg 6.17A: namely, concerning confirming, altering and revoking a nomination.[88]

Responding to changes in circumstances

7.87     Certain aspects of wills law are directed towards changes in circumstances of testators. First, a will is revoked automatically in certain circumstances. Secondly, there is a process of seeking court approval for a will for a person who does not have testamentary capacity.

7.88     It is a longstanding rule that, as a matter of law, wills are revoked on marriage. In the latter part of the twentieth century this was extended to revocation on dissolution of marriage.[89] Given the analogy drawn between BDBNs, especially those that are non-lapsing, and wills, the ALRC considers that a review of the BDBN provisions should be a broad one and include consideration of such doctrines.

7.89     A concern to be able to respond to changes in circumstances in the superannuation context was raised by stakeholders.[90] Hamilton Blackstone Lawyers suggested that the non-lapsing death benefit nominations, offered by many superannuation funds, provided flexibility to deal with changes in circumstances, ‘in that the trustee of the superannuation fund can exercise its discretion to withdraw its consent to the nomination if the member’s circumstances have changed’.[91] The ALRC acknowledges that, while this is one mechanism for responding to changes in circumstances, it puts matters in the hands of the trustees to honour, or not, the wishes as expressed in the nomination. The alternative, as in the case of wills, is to revoke the nomination in such a case, allowing for a new nomination to be made to reflect the change in circumstances. The ALRC considers that such similarities and differences are best considered in a full review.

7.90     The Public Trustee of Queensland referred to experience in acting as administrator for adults with impaired decision-making ability and suggested that attorneys should have the power to make a BDBN, for example where:

Circumstances have changed such that it is demonstrably clear that an existing binding nomination should be changed, or effectively withdrawn (for example a binding nomination to a spouse where the relationship has ended).[92]

7.91     The need to renew a nomination that lapses, after a person loses capacity, was a concern for the Senior Rights Service (SRS) in light of the person’s ‘estate planning requirements’.[93] SRS was concerned that other protections were needed in such a case. The Financial Planning Association gave another example:

For example, if the principal had not disclosed to his children the existence of a sibling, and the family wanted to treat the newly found child equally. Exceptions to the prohibition should apply under a court order in certain circumstances.[94]

7.92     The ALRC considers that changes in circumstances can be addressed in two ways, both based on analogy from wills laws. The Law Council of Australia, for example, suggested that revocation ‘in the same circumstances that a will would be revoked’ should be considered.[95] The other way wills law responds to changes in circumstances, and particularly a loss of legal capacity, is through a process of approval known as ‘statutory wills’.

7.93     A basic principle of wills formalities is that a person is required to have testamentary capacity when making a will. If a person was regarded as no longer having testamentary capacity, any will made by such person would be void.[96] Now, however, under strict conditions, wills can be authorised by the court in all states and territories where a person is regarded as having lost, or never having had, legal capacity.[97] In the succession context it is a relatively new jurisdiction for the court to be able to approve these ‘statutory wills’. It is exercised cautiously, given the importance accorded to testamentary freedom as a valued property right.[98]

7.94     There may be an opportunity to consider an analogous process in relation to BDBNs, as part of the broader considerations about how such nominations operate. Such an approach could sit alongside the policy position that an attorney under an enduring power, by virtue of that power alone, should not be able to make a BDBN for a member of a superannuation fund.

7.95     If a member dies, then any superannuation balance is paid in accordance with the rules of the fund. That balance may well form part of the member’s estate in due course. A person who holds an enduring power of attorney may apply for a statutory will on behalf of the member during the member’s lifetime, but that is an entirely different matter from seeking to use the power of attorney to make the death benefit nomination on behalf of the member. The application for a statutory will would be subject to the strict scrutiny of the court. Whether the authorisation of a court should be required, or some other analogous process, is a matter for consideration in the review recommended in Recommendation 7–1.

7.96     The Law Council of Australia agreed that there should be ‘a cost effective way for an attorney to make an application to a tribunal to authorise a change in the principals’ affairs in certain circumstances’ and supported consideration of a process of court approval as part of the ‘consideration of the broader consequences’ if attorneys under EPOAs were not allowed to act in relation to BDBNs:

In the absence of such provisions, individuals who lose capacity will be at risk of having no BDBN in place (given that generally a BDBN in a fund, other than a self-managed superannuation fund, will lapse after 3 years unless a mechanism is adopted for non-lapsing nominations or reversionary pension rules apply).

Perhaps more importantly, individuals will be at risk of having a BDBN that has become inappropriate continue in effect until lapsing.

Clearly, it would be desirable that the Court should have the ability to consider these circumstances and whether it should intervene to revoke, amend or re-make a BDBN to avoid an outcome that would not have aligned with the member’s intentions had they had capacity.[99]

7.97     The Law Society of South Australia also supported an approval process for a nomination put forward by an attorney under an EPOA ‘where the consent of the Tribunal has been obtained’:

This would offer the opportunity to deal with circumstances where a non-lapsing binding nomination has been put in place by a donor of a Power of Attorney during their lifetime but circumstances have changed. This also deals with the situation where a donor has put in place a binding death benefit nomination which lapses after three years. The Tribunal may be in a position to provide consent to the confirmation of the nomination in circumstances where the Tribunal considers this would be consistent with the intentions of the donor who has lost capacity.[100]

[12]           Halsbury’s Laws of Australia, Title 430, ‘Trusts’, (D) ‘Trustees’ Power to Delegate and Employ Agents’, [430-4385] ‘Duty not to delegate and exceptions’; JD Heydon and Mark Leeming, Jacob’s Law of Trusts in Australia (LexisNexis Butterworths, 7th ed, 2006) [1723]. The rule is expressed in the Latin maxim ‘delegatus non potest delegare’.

[13]           Halsbury’s Laws of Australia, Title 430, ‘Trusts’, (B) ‘Exercise of Powers of Trustees’, [430-4345] ‘Influence of view of third parties on exercise of power’.

[14]           Superannuation Industry (Supervision) Act 1993 (Cth) s 55A. This section provides that the governing rules of a regulated superannuation fund must not permit a fund member’s benefits to be cashed after the member’s death otherwise than in accordance with the prescribed standards.

[15]           Australian Prudential Regulation Authority, Prudential Practice Guide: SPG 280—Payment Standards for Regulated Superannuation Funds and Approved Deposit Funds (2012) [55].

[16]           See Halsbury’s Laws of Australia, Title 400, ‘Superannuation’, (8) ‘Governing Rules of Superannuation Entities’, [400-850] Non-delegable discretion. Section 59(1A) does not apply to SMSF: see Munro v Munro [2015] QSC 61 and accordingly an SMSF BDBN can last indefinitely.

[17]           Australian Prudential Regulation Authority, Prudential Practice Guide: SPG 280—Payment Standards for Regulated Superannuation Funds and Approved Deposit Funds (2012) [7].

[18]           Retail Employees Superannuation Pty Ltd v Pain [2016] SASC 12 (8 August 2016) [439] (Blue J).

[19]           Superannuation Industry (Supervision) Act 1993 (Cth) s 10(1). Definition of ‘legal personal representative’.

[20]           Ibid s 10(1) (definition of ‘dependant’). For the purposes of taxation law a death benefit dependant has a different definition: see Australian Taxation Office, APRA-Regulated Funds: Paying Superannuation Death Benefits <https://www.ato.gov.au/super/apra-regulated-funds/paying-benefits/paying-superannuation-death-benefits/>.

[21]           Superannuation Industry (Supervision) Act 1993 (Cth) s 10(1) (definition of ‘spouse’). Importantly, there is no requirement for the relationship to be for two years in duration. The Act simply requires the couple to live together on a genuine domestic basis.

[22]           Ibid s 10A. The requirements are cumulative.

[23]           Superannuation Industry (Supervision) Regulations 1994 (Cth) reg 6.17A(6).

[24]           Ibid reg 6.17A(3).

[25]           Ibid reg 6.17A(7).This is subject to a trustee of the entity complying with any conditions contained in the regulations, and the member’s notice being given in accordance with the regulations. See Superannuation Industry (Supervision) Act 1993 (Cth) s 59(1A).

[26]           Superannuation Industry (Supervision) Regulations 1994 (Cth) reg 6.17A(5).

[27]           Ibid reg 6.17A(5)(b).

[28]           Ibid reg 6.17A(5)(a).

[29]           Nicola Peart and Prue Vines, ‘Will Substitutes in New Zealand and Australia’ in Alexandra Braun and Anne Roethel (eds), Passing Wealth on Death: The Phenomenon of Will-Substitutes from a Comparative Perspective (Hart Publishing, 2016) 107, 122.

[30]           Superannuation Complaints Tribunal, Key Considerations That Apply to Death Benefit Claims (2006) 2.

[31]           Australian Prudential Regulation Authority, Prudential Practice Guide: SPG 280—Payment Standards for Regulated Superannuation Funds and Approved Deposit Funds (2012) [61]. The Tribunal describes it as ‘an emotionally fraught topic’: ‘Focus: Death Benefits’, SCT Quarterly (Q1 2017) <www.Sct.Gov.Au/Newsletters/Sct-Quarterly-Q1-2017>.

[32]           ‘Focus: Death Benefits’, SCT Quarterly (Q1 2017) <www.Sct.Gov.Au/Newsletters/Sct-Quarterly-Q1-2017>.

[33]           Superannuation Complaints Tribunal, Key Considerations That Apply to Death Benefit Claims (2006).

[34]           Ibid [124]; Determination D15-16\112 [2016] SCTA 39 (17 March 2016) [42].

[35]           Eg, Determination No D16-17\124 [2017] SCTA 13 (25 January 2017); Determination D15-16\112 [2016] SCTA 39 (17 March 2016); Determination D14-15\172 [2015] SCTA 31 (2 March 2015).

[36]           See Australian Taxation Office, above n 20.

[37]           Caroline Harley, ‘Supercharging Battles over Superannuation Death Benefits’ (August 2014) Law Society Journal 68, 69.

[38]           Williams v Federal Commissioner of Taxation 81 CLR 359; Re Danish Bacon Co Ltd Staff Pension Fund Trusts [1971] 1 WLR 248; McFadden v Public Trustee (Vic) [1981] 1 NSWLR 15; Baird v Baird [1990] 2 AC 548. See, eg, Gino Dal Pont and Ken Mackie, Law of Succession (LexisNexis Butterworths, 2013) [20.3]; Rosalind Croucher and Prue Vines, Succession: Families, Property and Death (LexisNexis Butterworths, 4th ed, 2013) [3.10]–[3.12].

[39]           The notional estate provisions are discussed in Dal Pont and Mackie, above n 38, [20.57]–[20.76]. One commentator suggests that there may be a conflict between the SIS Act, as a Commonwealth law, allowing a member to nominate a recipient of superannuation, and the New South Wales provisions permitting the designation of that same benefit as ‘notional estate’ for family provision purposes, and that this ‘could bring into play s 109 of the Constitution under which the Commonwealth law must prevail’: Thomson Reuters, The Laws of Australia Title 36, ‘Wills and Estate Administration’, 36.2 ‘Family Provision’ [36.2.730]. This statement is not supported by authority, nor has it been tested.

[40]           Rae Kaspiew, Rachel Carson and Helen Rhoades, ‘Elder Abuse: Understanding Issues, Frameworks and Responses’ (Research Report 35, Australian Institute of Family Studies, 2016).

[41]           Law Council, Submission 61.

[42]           State Trustees Victoria, Submission 138.

[43]           Queensland Law Society, Submission 159.

[44]           Retail Employees Superannuation Pty Ltd v Pain [2016] SASC 12 (8 August 2016) [512].

[45]           Ibid [495]–[496].

[46]           Ibid [513].

[47]           Ibid [514].

[48]           The Treasury (Cth), ‘Superannuation and Retirement’ <www.Treasury.Gov.Au/Policy-Topics/SuperannuationAndRetirement>’.

[49]           T Chapman, Submission 268.

[50]           Hamilton Blackstone Lawyers, Submission 270.

[51]           Financial Planning Association of Australia (FPA), Submission 295.

[52]           SMSF Association, Submission 382.

[53]           Australian Law Reform Commission, Elder Abuse, Discussion Paper 83 (2016) prop 9–2.

[54]           Institute of Legal Executives (Vic), Submission 320. See also Seniors Rights Victoria, Submission 383; Law Society of South Australia, Submission 381; Chartered Accountants Australia and New Zealand, Submission 368.

[55]           Except in the ACT and Western Australia, it is no longer necessary for the witnesses to sign in the presence of each other: see summary in Croucher and Vines, above n 38, [7.17]; Dal Pont and Mackie, above n 38, [4.12]–[4.16].

[56]           See ch 8.

[57]           Law Council, Submission 61.

[58]           On dispensing powers in relation to wills, see Croucher and Vines, above n 38, ch 8; Dal Pont and Mackie, above n 38, [4.30]–[4.47].

[59]           In the event that a notice is found to be invalid, the funds would be paid at the discretion of the trustee.

[60]           State Trustees Victoria, Submission 138.

[61]           Queensland Law Society, Submission 159.

[62]           Carroll & O’Dea, Submission 335.

[63]           Law Council, Submission 351.

[64]           Law Council, Submission 61. With respect to capacity issues, the Law Council of Australia referred to D14-15\172 [2015] SCTA 31.

[65]           R Lewis, Submission 349.

[66]           Victorian Law Reform Commission, Succession Laws, Report (2013) [2.19]–[2.26].

[67]           Australian Law Reform Commission, Equality, Capacity and Disability in Commonwealth Laws, Report No 124 (2014) [11.55]–[11.65].

[68]           Law Council, Submission 61.

[69]           Quoted in Australian Law Reform Commission, Equality, Capacity and Disability in Commonwealth Laws, Report No 124 (2014) [11.60].

[70]           Ibid [11.60].

[71]           Ibid [11.63], citing Law Council Submission 142.

[72]           Australian Law Reform Commission, Elder Abuse, Discussion Paper 83 (2016) prop 9–3.

[73]           Superannuation Industry (Supervision) Act 1993 (Cth) s 59(1A); Superannuation Industry (Supervision) Regulations 1994 (Cth) reg 6.17A.

[74]           Superannuation funds are protected in part by s 116(2)(d) of the Bankruptcy Act 1966 (Cth). Keeping the superannuation death benefit out of the estate by paying directly to a beneficiary may increase protections against creditor claims.

[75]           Richard Williams and Brian Herd, ‘An Enduring Question: To What Extent Can Those Appointed under an Enduring Power of Attorney in Australia Make, Revoke, Alter or Confirm a Superannuation Death Benefit Nomination?’ [2015] (March) STEP Journal 18, 25.

[76]           Ibid 27.

[77]           Carroll & O’Dea, Submission 335.

[78]           Hamilton Blackstone Lawyers, Submission 270.

[79]           Williams and Herd, above n 75, 27.

[80]           Carroll & O’Dea, Submission 335.

[81]           Williams and Herd, above n 75, 27, 28.

[82]           Carroll & O’Dea, Submission 335.

[83]           Law Council, Submission 351.

[84]           Financial Services Council, Submission 359. Similarly: SMSF Association, Submission 382.

[85]           Chartered Accountants Australia and New Zealand, Submission 368.

[86]           See ch 10.

[87]           The definition of ‘legal personal representative’ includes a person holding an enduring power of attorney, but does not refer to an appointed financial administrator: Superannuation Industry (Supervision) Act 1993 (Cth) s 10(1).

[88]           A further issue concerns the non-renewal of a BDBN: if an attorney under an EPOA is able to make a nomination, the attorney may also choose not to do so, which may have beneficial consequences for the attorney or the attorney’s family members pursuant to the will or intestacy of the fund member.

[89]           See Croucher and Vines, above n 38, [9.2]–[9.9]; Dal Pont and Mackie, above n 38, [5.23]–[5.41].

[90]           See, eg, Seniors Rights Service, Submission 296; Financial Planning Association of Australia (FPA), Submission 295; Hamilton Blackstone Lawyers, Submission 270.

[91]           Hamilton Blackstone Lawyers, Submission 270.

[92]           Public Trustee of Queensland, Submission 249.

[93]           Seniors Rights Service, Submission 296. See also Institute of Legal Executives (Vic), Submission 320.

[94]           Financial Planning Association of Australia (FPA), Submission 295.

[95]           Law Council, Submission 351.

[96]           See, eg, Croucher and Vines, above n 38, ch 6.

[97]           Succession Act 2006 (NSW) ss 18–26; Succession Act 1981 (Qld) ss 21–28; Wills Act 1936 (SA) s 7; Wills Act 2008 (Tas) ss 21–28; Wills Act 1997 (Vic) ss 21–30; Wills Act 1970 (WA) s 40; Wills Act 1968 (ACT) ss 16A–16I; Wills Act 2000 (NT) ss 19–26.

[98]           See, eg, Croucher and Vines, above n 38, [6.11]–[6.20].

[99]           Law Council of Australia, Submission 351.

[100]         Law Society of South Australia, Submission 381.