Will the role of an attorney appointed to act as trustee of an SMSF automatically cease on the member’s death?

Introduction

In the absence of a binding death benefit nomination (BDBN), it is the trustee of a superannuation fund who has the discretion as to payment of a deceased member’s death benefit.

It follows from this, that control of the trustee (whether the trustee be the individual members or a corporate trustee) can be critical to ensuring a deceased member’s death benefit is paid as that member might wish.

But if a member lost capacity prior to death and so that member’s enduring power of attorney was appointed as trustee, will the attorney’s role as trustee automatically determine on the member’s death in favour of the executor of the deceased member’s estate?

This issue was considered in the recent New South Wales Supreme Court decision of Dawson -v- Dawson ^[1].

Facts

The Dawson Superannuation Fund was established in 2005 by the late Peter Dawson and his wife Estelle. Peter and Estelle were the only members of the fund and were the trustees of the fund.

The plaintiff in the action was the deceased’s son by his first wife, Tony, who also held his father’s power of attorney. Tony was appointed a trustee of the fund in Peter’s place prior to Peter’s death after Peter lost capacity because of dementia.

Under Peter’s will, Peter appointed Estelle’s son-in-law, George Holland, as executor of his estate. After Peter’s death, Estelle and George Holland signed a deed which purported to ratify the appointment of George Holland as trustee of the fund in lieu of Tony with effect from the date of Peter’s death.  In other words, the deed purported to have retrospective effect.

Tony disputed the purported appointment of George Holland as trustee merely because he was executor for his father’s estate claiming that his appointment, as trustee prior to his father’s death, remained valid after his father’s death and that he could not be removed under the terms of the trust deed.

Issue

Tony argued that his appointment as trustee was valid and remained good after his father’s death. On the other hand, George Holland argued that Tony’s appointment ended automatically on Peter Dawson’s death and that his own appointment as executor of the estate was valid and necessary for the superannuation fund to remain a compliant fund for SIS Act purposes.

The issue turned on whether Tony’s appointment as trustee of the fund prior to his father’s death was an appointment of Tony in his personal capacity or in his capacity as Peter’s power of attorney.

Also, the outcome depended on whether Tony’s appointment ceased automatically on Peter’s death.

Relevant provisions of SIS Act

For a single member fund, s.17A(2) of the SIS Act provides that there must be another individual trustee who can be a relative of the member or someone who is not the employer of the member.

If a member is unable to be a trustee, the fund will not fail to comply with the SIS Act if another person is appointed trustee in place of the member. While the member is alive, the other person may be a person who holds an enduring power of attorney and when the member dies the other person may be the executor of the member’s estate but can only be a trustee in place of the member until the member’s death benefit commences to be payable.

17A(4) allows for a 6 month grace period in which an SMSF must qualify with these requirements.

Held

The Court took the view that when Tony was appointed as trustee of the fund in lieu of his father after his father lost mental capacity, he was appointed as trustee in his personal capacity and not in his capacity as attorney for his father. This in turn meant that his appointment did not cease upon his father’s death when the power of attorney automatically terminated.

The reason for this was that the appointment of any trustee is a personal appointment. Trustees are personally responsible for their actions in the way they deal with trust property.  This meant that when an attorney is appointed as trustee of an SMSF, they will be acting in their personal capacity as trustee rather than as attorney.

The Court examined the terms of the trust deed and noted that the appointment of a trustee did not cease on the death of the member – Peter Dawson in this case. This meant that the deed entered into between Estelle and George Holland was of no effect because Tony remained trustee at the time and, under the terms of the trust deed, Tony had to consent to any subsequent trustee appointment.

For Tony Dawson to be removed as trustee of the fund, the termination provisions in the deed needed to be followed.

Lessons to be learned

The obvious point to make about the case is that the litigation could have been avoided had Tony been appointed co-executor of the estate. The complication arose when Peter appointed his son as power of attorney and then subsequently his wife’s son-in-law as the executor of his estate.

The case shows also that s.17A of the SIS Act does not provide for an automatic appointment or termination of trustee – whether as power of attorney or executor.  The important point here is to understand that the appointment and termination provisions in the superannuation trust deed are key to this issue.

[1] 2019 NSWSC 826