Key points
- Recent court cases have highlighted the importance of the correct wording of binding death benefit nominations.
- You need to execute your binding death benefit nomination strictly in accordance with your trust deed’s requirements.
- You might want to consider recording your decisions as trustee but not explaining them in writing in case you are ever questioned in court.
Beware – binding death benefit nominations are not necessarily the cheap and easy solution you may have been led to believe they are.
This unfortunate lesson has been borne out by two recent court cases.
Ioppolo v Conti
This case was an appeal from Ioppolo & Anor v Conti that I wrote about first here.
The appeal was heard by the WA Court of Appeal and like the initial case was commenced by the executors of Francesa Conti’s estate. They lost both cases.
In reality, these cases didn’t revolve around actual binding death benefit nominations but, in part, a misunderstanding about how these documents work. Also involved was a trust deed, which you could argue had questionable drafting.
In this case, the three-year time limit on binding death benefit nominations that typically apply to APRA regulated funds was in place because of how the trust deed was written.
Francesca Conti died in August 2010. She’d been married to Augusto for 28 years and had four children from a previous marriage. Two of these children were executors of her estate. The couple had started an SMSF in 2002 and before death, she had completed two binding death benefit nominations in favour of her husband. At the time of death, both binding death benefit nominations had lapsed.
The problem was Francesca’s will said her children should get her super monies.
As sole surviving trustee of the SMSF, Augusto then paid Francesca’s benefit to himself and nothing could be identified that was wrong with his decision to do this or how he managed the super fund.
The practical lessons learned from this case are:
- Have you completed a binding death benefit nomination on the assumption that your fund’s trust deed allows for it?
- Have you executed your binding death benefit nomination strictly in accordance with your deed’s requirements?
- Augusto always recorded his decisions as trustee but never explained them. As an SMSF trustee, you should think about doing the same in case you are questioned in court.
Munro & Anor v Munro & Anor
This is a Queensland Supreme Court case that was handed down in late March. It also involved the validity of a binding death benefit nomination. In this case the binding death benefit nomination had been executed by Barrie Munro who had been a practising solicitor before his death in August 2011.
The case involved Munro’s second wife, Suzie, and his two daughters from a previous marriage.
The binding death benefit nomination would have paid Munro’s super benefits to his estate, which would have seen this money paid directly to Suzie and, via testamentary trusts, to his two daughters. The will said that any money paid directly from a super fund to Suzie would offset what she was entitled to under his Will.
After Mr Munro had died, he was replaced as a trustee of the fund by his wife’s daughter, Angela Pooley, who it appears wasn’t related to Bruce.
Suzie and Angela decided that Bruce’s binding death benefit nomination was invalid and said they intended to exercise their discretion as to how his benefit should be paid from the fund.
The court decided the binding death benefit nomination was invalid because it nominated the “trustee of his deceased estate”. These words had been written by someone in the office of Munro’s accountant.
Ordinarily, most people might know what the intention of these words was. However, referring to a 1960s Full Bench of the Australian High Court case, this form of words was not helpful in anyway. The only way the benefit could have been paid to his estate is if the binding death benefit nomination had made reference to his legal personal representative.
In any event, the three-year time limit for large fund binding death benefit nominations, which had been important in the Ioppolo case above, didn’t apply in this case.
The key take out from this case is that, if a practising solicitor can get a binding death benefit nomination wrong, then what makes anyone else think they don’t need good legal advice when they complete one of these documents?
Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.
