Knowledge

04 February 2016

Superannuation Binding Death Benefit Nominations – An Invaluable Estate Planning Tool

With over $1.9 trillion worth of aggregated assets in Australian superannuation funds[i], it is really no surprise that your superannuation can be one of your largest assets at the time of your demise.  What is surprising, however, is that many Australians do not have a binding death benefit nomination (“BDBN“) in place to direct who is entitled to receive their superannuation death benefits, or often if they do have a nomination in place, it is invalid.

Superannuation is not automatically an asset of your estate and therefore is not (in the usual course) controlled by the provisions in your will.  The distribution of superannuation on your demise is governed by the Superannuation Industry (Supervision) Act 1993 (“SIS Act“), Superannuation Industry (Supervision) Regulations 1994, and the provisions in the trust deed which establishes the superannuation fund.  If you do not have a BDBN in place or your nomination is found to be invalid, the trustees of your superannuation fund can decide how and to whom your death benefit will be paid.

The recent decision of the Supreme Court in Munro v Munro [2015] QSC 061 (“Munro v Munro”) highlights the importance of having a valid BDBN and the care that must be taken when drafting these nominations.

The facts in Munro v Munro

Mr Munro (deceased) was survived by his wife, Mrs Munro (the respondent) and his two daughters from his previous marriage (the applicants).

Mr Munro and Mrs Munro had a self managed superannuation fund of which they were the trustees and members, and in 2009 Mr Munro signed a BDBN form with respect to his superannuation death benefits.

The BDBN form was prepared by Mr Munro’s accountant and included the following instruction when nominating a beneficiary:

“Each nominated beneficiary must be your spouse (legal or de facto), child (including adopted or step-children), financial dependant, interdependent or the executor of your estate (as stated in your will).  When you nominate your executor you should enter ‘legal personal representative’ in the relation column.”

The section, however, on Mr Munro’s form that allowed for the nomination of a beneficiary had the words “Trustee of Deceased Estate” and the relationship of the nominated beneficiary was shown as “Trustee”.

In 2011 Mr Munro passed away, and following his death he was replaced as co-trustee of the fund by a daughter of Mrs Munro, who was also a respondent to the application.

In March last year, the respondents gave notice to the applicants of their intention to exercise their discretion (as the trustees of the fund) to pay out Mr Munro’s death benefits.  The respondents argued they were entitled to use their discretion as the nomination was not in accordance with the governing rules of the superannuation fund.

The issues for the Court to consider were: what did Mr Munro mean by nominating “Trustee of Deceased Estate” and was the nomination valid?

The governing rules of Mr Munro’s self managed superannuation fund permitted the trustee of the fund to pay a death benefit in accordance with a BDBN only if the nominated beneficiary is:

  1. one or more dependants of the member; or
  2. the legal personal representative.

The term “legal personal representative” is defined in the SIS Act as “the executor of the will of a deceased person”.

The Court acknowledged that although the term “executor” may sometimes be used interchangeably with the term “trustee”, the roles are distinct.  The executor carries out the functions and duties of the administration of the estate (for example calling in the assets and paying out any liabilities), and upon completion of those duties, the same person who was the executor of the estate may then become the trustee.  The trustee then distributes the balance of the estate to the beneficiaries in accordance with the provisions in the will.

Under Mr Munro’s will, his two daughters were to become the trustees of his estate after completing the administration duties.  However, at the time of this application, the administration duties had not been carried out and therefore Mr Munro’s daughters were not yet the trustees.

The applicants argued that the nomination made by Mr Munro in favour of the “Trustee of Deceased Estate” was intended to be operative as a BDBN and that the words “Trustee of Deceased Estate” was another way of referring to the executors.

The Court considered the applicants’ argument, however found it difficult to reach that conclusion when the form itself provided the option of specifying a legal personal representative in the instructions.

The decision 

Justice Mullins ordered that the 2009 nomination signed by Mr Munro was not a valid BDBN.  The nomination did not comply with the governing rules in the trust deed, which required a nomination to be in favour of the member’s dependants or legal personal representative.

Although the judgment does not state to whom the death benefit was to be paid, it could be assumed that Mrs Munro wanted to receive the benefit herself, rather than Mr Munro’s daughters.

What can we take away from Munro v Munro?

  1. Superannuation binding death benefit nominations must be prepared with care and precision.  Drafting a binding death benefit nomination is not as simple as just filling out a form.
  2. Knowing who you can appoint as your beneficiary is crucial.  It is important to keep in mind that there are only certain people who can be nominated as beneficiaries of a superannuation death benefit.
  3. The governing rules of self managed superannuation funds must always be considered when drafting binding death benefit nominations.
  4. Binding death benefit nominations, just like wills and enduring powers of attorneys, are legal documents which should be prepared by an experienced succession lawyer.

Superannuation is an asset nearly all working age Australians have.  Whether you are a member of a public fund or a self managed superannuation fund, as part of your estate plan, we strongly recommend that you have a binding death benefit nomination in place.

For more information about superannuation death benefit nominations and all estate planning matters, please contact our Wills and Estates Solicitor, Bianca Stafford on 07 4036 9700.

 


[i] The Association of Superannuation Funds of Australia Limited Superannuation Statistics December 2015

Signup for all the latest news + offers

Share This

Select your desired option below to share a direct link to this page