Binding death benefit nominations are a direction given by a superannuation member to the trustees of a superannuation fund as to how the member’s superannuation benefits are to be paid on the member’s death. Often binding death benefit nominations are appropriate when a member considers the trustee may not distribute the benefits as the member desires.
It is often the case that binding death benefit nominations are only valid for 3 years, and we recommend that our clients consider renewing such nominations every 3 years to ensure they remain valid. While a binding death benefit nomination may be in a short form, careful attention must be paid to the terms of the nomination to ensure that it is valid.
The case of Munro & Anor v Munro & Anor  QSC 61 in the Queensland Supreme Court illustrates this clearly in the context of a self-managed superannuation fund (“SMSF”).
Barrie Munro died in August 2011 and was survived by his wife, Patricia Munro, and two daughters from his previous marriage, Vanessa and Elke Munro. Mr Munro named Mrs Munro and his two daughters as executors of his estate in his will.
In July 2004, Mr and Mrs Munro established a SMSF under which they were both appointed trustees.
The relevant terms of the SMSF trust deed on the death of a Member were as follows:
- Clause 31.1 gave the trustee the option to pay any benefit to:
- The Nominated Dependant (as nominated by the Member);
- The legal personal representative of the deceased; or
- To any of the deceased’s dependants (as defined in the Superannuation Industry (Supervision) Act 1993 (Cth) and regulations to include a spouse, child or person in an interdependent relationship with the deceased).
- This trustee discretion was subject to Clause 31.2, which required the trustee to pay the benefits in accordance with a binding nomination, where the nomination:
- Is signed by the nominator;
- Specifies the benefits are payable to either one or more Nominated Dependents or the legal personal representative;
- Specifies that the nomination is binding; and
- Complies with certain relevant legislative requirements.
In September 2009, Mr Munro signed a form headed “Binding death benefit nomination”.
The nominated beneficiary was “Trustee of Deceased Estate” in the amount of “100%”. The specified relationship of the beneficiary to the deceased was “Trustee”.
After Mr Munro died, one of Mrs Munro’s daughters, Ms Pooley, was appointed to replace Mr Munro as trustee of the SMSF. As trustees of the SMSF, Mrs Munro and Ms Pooley then gave Mr Munro’s daughters notice that:
- They considered the September 2009 nomination was invalid, based on clause 31.2 of the trust deed; and
- They intended to exercise discretion in distributing Mr Munro’s superannuation benefits, pursuant to clause 31.1 of the trust deed.
Mr Munro’s daughters commenced an application seeking a declaration that the nomination was an effective binding death benefit nomination to the executors as “legal personal representatives”, or alternatively, to the trustees under the will in their capacity as “dependants”.
The Court ultimately held that the September 2009 nomination failed as a binding nomination, and that Mrs Munro and her daughter were entitled to exercise their discretion in the payment of Mr Munro’s superannuation benefits in accordance with clause 31.1 of the trust deed.
The nomination had to comply with clause 31.2 in order to avoid the exercise of trustee discretion under clause 31.1. Clause 31.2 required the nomination to specify that the benefit was payable to one or more dependants or the legal personal representative of the deceased.
In order to correctly nominate the legal personal representative, the Court set out that a nomination:
- “must specify that it is nominating the legal personal representative or the executor of the will”; or
- “name the executor of the will (if that coincides with the executor named in the last will), but identify that the named person is the legal personal representative” (at ).
The Court did not accept that the word “trustee” could be interpreted to mean “executor”, as the roles of each appointment are distinct. Justice Mullins explains:
“An executor holds the property of a deceased for the purpose of carrying out the functions and duties of the administration of the estate, but upon the completion of those administration duties the assets then may be applied to the trusts under the will. The same person who was executor may become the trustee of the deceased estate” (at ).
The Court also did not accept that “trustee of deceased estate” could be interpreted to mean the deceased’s dependants (who were trustees of testamentary trusts established in the will).
The Court clearly stated that it was not appropriate to rely upon the terms of the will to interpret the nomination “when the nomination is for the purpose of payment of the death benefit from the fund” (at 44]).
This case is a clear reminder that, in the first instance, the distribution of superannuation benefits is a process distinct from the administration of estate assets. Careful attention must be paid to terms of any trust deed and the relevant legislation when drafting a binding death benefit nomination.
For more information regarding Binding Death Benefit Nominations
If you would like assistance in drafting your own binding death benefit nomination or you would like advice on whether you may need a binding death nomination, contact one of our Business Development Officers today on (07) 3252 0011.