As at 31 March 2015, there were 550,706 self-managed superannuation funds (SMSF) in Australia holding a total net amount of $580.176 billion in Australian and overseas assets. That’s a lot of wealth, and its succession isn’t necessarily covered by a will.
Wait, what? Yes, instead of a will, the succession of your superannuation death benefits is governed mainly by these three things:
• whether there is a death benefit nomination in place (and what type of nomination it is);
• the trust deed for your superannuation fund; and
• who the trustee of your superannuation fund is.
If you have a SMSF, consideration of these things is crucial when planning your estate.
There are generally three options that members of a SMSF have under a SMSF trust deed when it comes to death benefit nominations – to make no nomination, to make a non-binding death benefit nomination, or to make a binding death benefit nomination (BDBN). Where there is no valid BDBN at the time of your death, it is up to the trustee of the SMSF to decide who to pay your death benefits to. This is where many disputes can arise.
What makes for a valid binding death benefit nomination?
There are a number of things which makes for a valid BDBN, one of which is a valid nomination of beneficiary.
In the case of Munro v Munro  QSC 61 there was a two member SMSF involved. The members were Barrie Munro (Deceased) and the Deceased’s second spouse, Patricia Suzanne Munro (Patricia).
The trustees of the SMSF were the Deceased and Patricia, individually. The Deceased had two daughters from a previous marriage. Prior to his death and according to his instructions, the Deceased’s accountants filled out a document entitled ‘Binding Death Benefit Nomination’, directing the trustees of the SMSF to pay the Deceased’s death benefits to the ‘Trustee of Deceased Estate’. The Deceased signed the completed form.
Upon the Deceased’s death, the trustees of the SMSF (Patricia and the Deceased’s step-daughter) considered that the Deceased’s BDBN was invalid and, thus, wished to pay his death benefits to Patricia, as the Deceased’s spouse.
A dispute arose between the trustees of the SMSF and the Deceased’s two biological daughters, who stood to benefit if the death benefits were paid into the estate.
The Court considered the terms of the SMSF trust deed, the Superannuation Industry (Supervision) Act 1993 (Cth) (SIS Act), and the Superannuation Industry (Supervision) Regulations 1994 (SIS Regs). It found that the nominated ‘Trustee of Deceased Estate’ was not, in fact, one of the class of persons which the Deceased could direct his death benefits to.
This was because the SMSF trust deed (which incorporated some sections of the SIS Act and some regulations of the SIS Regs) only allowed payment of death benefits in favour of a dependant or a member’s personal legal representative. Thus, the BDBN was not a valid BDBN and it was open for the SMSF’s trustees (Patricia and the Deceased’s step-daughter) to pay the death benefits to Patricia.
Considering this case, we learn two key lessons about what needs to be considered when implementing BDBNs for your SMSF:
• It is important to be precise when drafting BDBNs, and to review the terms of the SMSF trust deed. Avoid engaging in a mechanical ‘fill in the form’ exercise because each SMSF trust deed is different and the requirements under each for a valid BDBN are different also.
• Know who you can leave your death benefits to, as a BDBN made in favour of a person who is not your dependant (as defined in the SIS Act) or your legal personal representative will not be a valid BDBN. In such a case, it will be up to the trustee of your SMSF to decide who to pay your death benefits to. As in the case of Munro, this may lead to a dispute and/or your death benefits going to unintended beneficiaries.
If you would like to check whether the BDBN you’ve made is valid, or if you would like to make a valid BDBN as part of your estate planning, we can help. Contact us on (08) 9228 2881.
Disclaimer – The articles provided by Equitas Lawyers are for general information only. While every care has been taken in preparing these articles, they are intended to be a guide only, and no warranty is given as to the accuracy, currency or completeness of the information contained in them. The articles are not intended to be, nor should it be, relied upon as a substitute for legal or other professional advice. Formal legal advice should be sought in particular matters.