Binding death benefit nominations – is yours valid? Lessons learnt from Munro & Anor v Munro & Anor [2015] QSC 61

When a superannuation member passes away, a Binding death benefit nominations directs the trustees as to how the member’s superannuation benefits are to be paid. This is appropriate for members who wish to have the trustee distribute their benefits according to their desire after passing away.

We recommend that our clients ensure their death benefit nominations are valid for 3 years and pay careful attention to the terms of the nomination to ensure that it is valid.

The case of Munro & Anor v Munro & Anor [2015] QSC 61 in the Queensland Supreme Court clearly explains the context of a self – managed superannuation fund (“SMSF”).

The Case

In August 2011, Barrie Munro passed away and was survived by his wife, Patricia Munro, and two daughters from his previous marriage, Vanessa and Elke Munro.   Mrs Munro and his two daughters were named as executors of his estate in his will.

In July 2004, Mr and Mrs Munro had established a SMSF and were both appointed trustees.

The relevant terms of the SMSF trust deed on the death of a Member were as follows:

  1. Clause 31.1 gave the trustee the optionto 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).
  1. This trustee discretion was subject to Clause 31.2, which requiredthe 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.

The Problem

In September 2009, Mr Munro signed a form headed “Binding death benefit nomination with the nominated beneficiary “Trustee of Deceased Estate in the amount of “100% The relationship specified on the nomination form was “Trustee”.

Following his death, 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 made an application to seek a declaration on the effectiveness of the binding death benefit nomination to the executors as “legal personal representatives” or to the trustees under the will as “dependents”.

The Outcome

The Court ruled that the September 2009 nomination failed as a binding nomination. In accordance with clause 31.1 of the trust deed, Mrs Munro and her daughter were entitled to exercise their discretion in the payment of Mr Munro’s superannuation benefits.

Clause 31.2 of the trust deed 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 [45]).

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 [41]).

The Court also did not accept that “trustee of deceased estate” could be interpreted to mean the deceased’s dependents (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 highlights the fact that   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.

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 Client Engagement Officers today on (07) 3252 0011.



 

 

 

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