Binding Death Benefit Nominations – the importance of getting it right

Binding Death Benefit Nominations – the importance of getting it right

The Supreme Court of Queensland has again highlighted the importance of taking care when drafting binding death benefit nominations for superannuation funds.

In Munro & Anor v Munro & Anor [2015] QSC 61 Mullins J ruled a document was not a binding nomination because it did not comply with the requirements set out the superannuation fund deed  nor did it comply with regulation 6.22 of the Superannuation Industry (Supervision) Regulations 1994 (Cth) (the Regulations).

Background

The deceased, Mr Munro, was a solicitor who died in 2011 leaving a wife and two adult daughters from an earlier marriage.  In 2004 Mr Munro had established a self-managed superannuation fund of which he and his wife were the members and trustees.  In 2006 Mr Munro signed a will and a document entitled “Binding Nomination: which purported to direct the superannuation fund pay his death benefits ‘to my estate’ on his death.  His will made provision for the payment of a gift of $350,000.00 to his wife, with the balance to testamentary trusts for each of his daughters.  His wife and daughters were appointed executors under the will, with each daughter appointed a trustee of her testamentary trust.

In 2009 Mr Munro’s accountants recommended he review a number of matters, including death benefit nominations, and he instructed them to provide paperwork to give effect to his binding nomination in favour of “Trustee of Deceased Estate”.  The document was prepared in accordance with those instructions, with the beneficiary typed is as “Trustee of Deceased Estate”, and the relationship of the nominated beneficiary shown as “Trustee”.  Mr Munro signed that document in September 2009.  The document included instructions as to how it could be completed, including that a ‘legal personal representative’ could be nominated.

Mr Munro died in August 2011, and was replaced as a trustee of the self managed superannuation fund by his wife’s daughter.

The application

A dispute arose between Mr Munro’s wife and his daughters about what should happen to his benefits under the self managed superannuation fund.  As Mr Munro’s estate was minimal, payment of the superannuation benefits was critical.  Mr Munro’s daughters brought an application seeking a declaration that the form signed by Mr Munro in September 2009 was a binding death benefit nomination.  Presumably the trustees of the self managed superannuation fund intended to pay the superannuation benefits to Mr Munro’s wife.

The law

Section 55A(1) of the Superannuation Industry (Supervision) Act 1993 (Cth) (the Act) states that regulated superannuation funds are not allowed to cash a member’s death benefits otherwise than in accordance with the standards prescribed for the purposes of section 31.  Section 31 of the Act sets out the operating standards for regulated superannuation funds and allows the Regulations to proscribe standards for the payment of benefits.  Section 59 of the Act limits the ability of people other than the trustee to exercise a discretion other than for nominations, but applies to superannuation entities other than self managed superannuation funds.  Regulation 6.17A provides the rules for the payment of death benefits for the purposes of section 59(1A), and regulation 6.22 provides limitations of the cashing of benefits in favour of persons other than the member (or their legal personal representative).

The court held that self managed superannuation funds were excluded from the operation of section 59 of the Act (and regulation 6.17A of the Regulations), although regulation 6.22 of the Regulations did apply.

The deed

Clause 31 of the self managed superannuation fund deed dealt with the payment of death benefits and the allowed a member to make a binding nomination where the nomination was was signed by the nominator, specified a benefit was to be paid to a “Nominated Dependant” or the legal personal representative of the member.  “Dependant” was defined in the deed as that term is defined in section 10 of the Act (ie. as including a spouse, child and any person with whom there is an interdependency relationship).  Nominated Dependent was deifined as a person nominated by the member as the nominated dependent.

The court’s finding

The court found that the September 2009 document was not a binding nomination as required by the deed, and did not comply with regulation 6.22 of the Regulations.

The court held that the use of the term “Trustee of Deceased Estate” did not appear to mean Mr Munro’s executors.  Mullins J observed:

“It may be that Mr Munro intended by instructing the form be completed with “Trustee of Deceased Estate” to mean his executors, but it is difficult to reach that conclusion when the form itself provided for the option of specifying a legal personal representative and advised how to complete the form accordingly”.

What does this mean?

People (and their advisors) must take great care in preparing, and reviewing, their estate plan – particularly when there are superannuation death benefits involved.  The failure to properly draft wills, binding nominations and other documents that take effect after death can have unintended and costly consequences for beneficiaries.

The Ballantyne Law Group would be pleased to assist you (or your clients) in reviewing, drafting and/or updating their estate plans.

Please contact us today on (07) 5606 7332.

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