A recent Supreme Court decision has revealed that many self-managed super fund (SMSF) members may not be making a death benefit nomination that is binding upon the trustee – due to incorrect wording!
A binding death benefit nomination (BDBN) is a nomination given by an SMSF member to the fund trustee stating who they want to receive their superannuation benefits when they die. If a nomination is not valid, the benefit will not be paid out according to that member’s wishes and may become subject to the trustee’s discretion.
In Munro & Munro v Munro & Munro [2015] QSC 61, the deceased SMSF member, Mr Munro, signed a binding death benefit nomination nominating “The Trustee of the Deceased Estate”.
When Mr Munro died, one of the three trustees of his SMSF disputed the nomination as invalid and asserted that the money should be paid out at their discretion. The two other trustees disagreed and applied to the Court to have the nomination declared valid and binding.
It was held by the Court that Mr Munro’s nomination was invalid and not binding because it did not comply with superannuation laws or the terms of the SMSF trust deed. Why did it not comply? The wording of Mr Munro’s nomination was erroneous.
Under superannuation law, it is explicitly recognised that only two classes of persons are entitled to receive superannuation benefits: dependants, or a legal personal representative. As such, any nomination that is not made to either of these classes of persons may be invalid. Mr Munro’s SMSF trust deed also mirrored the law.
With respect to Mr Munro’s nomination to “The Trustee of the Deceased Estate” – the Court understood that Mr Munro had intended to have his super benefits paid into his estate; however his choice of wording was incorrect and inconsistent with the law.
The Court held that the correct wording Mr Munro ought to have adopted to pay the benefit into his estate would be a nomination to “the executors” or the “legal personal representative”.
In her judgment, Justice Mullins emphasised that getting the semantics of a nomination correct is integral because “although colloquially the term “executor” may be used interchangeably with the term “trustee” the roles are distinct.”
Her Honour elaborated by explaining the distinct roles: the executor is tasked with administering the estate of the deceased. Once this process is finished, the remaining gifts and assets are then given to the trustee to distribute to the beneficiaries. Often the same person who was the executor may become the trustee.
Superannuation is a heavily regulated area that can be difficult to navigate for SMSF members and trustees. It is prudent that SMSF members receive legal advice and review their death benefit nomination at regular intervals, particularly in the aftermath of this decision. Please contact our office today to undertake a review of your nomination or SMSF trust deed.
