The recent Queensland Supreme Court decision in Munro v Munro (2015) QSC 61 is the latest blended family dispute over super death benefits involving a failed binding death benefit nomination (BDBN) established by a lawyer, accountant and financial planner. The case has significant implications for all parties.
Background
Mr Munro was a solicitor who died in August 2011 at the age of 66. He was survived by his second spouse, Patricia, and his two daughters from a previous marriage, Vanessa and Elke, who contested the death benefits. His will appointed his daughters and Patricia as executors of it. The dispute was between Patricia and her daughter (the respondents) and Mr Munro’s daughters, Vanessa and Elke (the applicants) regarding the distribution of death benefits from The Barrie and Suzie Super Fund. In February 2012, Patricia’s daughter replaced Mr Munro as a co-trustee to ensure the fund remained complying. Mr Munro signed a document entitled “Binding Death Benefit Nomination” on 22 September 2009 to direct the fund trustees to pay his death benefits on his death “to my estate” (an error repeated in some earlier nominations). The BDBN form noted a description of a “nominated beneficiary” and that when you nominate your executor you should enter “legal personal representative”, but instead the name of the beneficiary had been noted as “Trustee of Deceased Estate”. The trustees considered the BDBN to be invalid and wanted to exercise their discretion in relation to the payment of Mr Munro’s death benefit rather than pay the benefit in accordance with the BDBN. Mr Munro’s daughters made their challenge against the respondents, claiming the superannuation benefits should be paid to the estate for the death benefits to be distributed in accordance with the deceased’s will. Significantly, the “Relevant Requirements” under the trust deed were limited to the requirements that the trustee must comply with in order to avoid contraventions and to qualify for tax concessions. The deed requirements therefore did not adopt any strict Superannuation Industry (Supervision) (SIS) regulation 6.17A BDBN criteria. Note the BDBN that had been made by Mr Munro on 22 September 2009 was still well within a three-year expiry period when he died. His daughters’ argument was that the BDBN did not have to comply with SIS regulation 6.17A to be valid.
Decision
It was significant that the form dated 22 September 2009 did not strictly comply with the trust deed or SIS regulation 6.22 as the nomination was of neither Mr Munro’s executors under his will or one or more of his nominated dependants. The reference to “legal personal representative” has the specific meaning of the executor of the will of the deceased person (where there is a will).
The BDBN form signed by Mr Munro on 22 September 2009 was therefore not binding for the purpose of the fund’s trust deed. Therefore, the death benefit could be paid out at the discretion of the SMSF trustees (being the deceased’s second wife and stepdaughter) rather than having the death benefit form part of his estate and pass, in part, to the deceased’s daughters from his first marriage. The Munro decision highlights the need for a BDBN to follow the strict requirements of the particular SMSF deed. The trust deed prescribes the form and substance of the nomination.
However, the payment of any death benefit must also comply with the requirements of SIS regulation 6.22.
Implications
All advisers should be cautious when assisting with the preparation of death benefit nominations as the courts are strictly interpreting the requirements in the context of the provisions of the SMSF trust deed and legal definitions. The following are some of the planning issues that can be drawn from the case:
- The provisions of the Superannuation Industry (Supervision) Act, which set out the form of a BDBN in section 59, do not apply to SMSFs.
- Correct use of terminology is crucial when directing a benefit to a deceased estate. Often legal terms are used interchangeably, such as trustee, administrator, executor and legal personal representative, but in fact they have different meanings.
- For the purpose of making any death benefit nomination, SIS regulation 6.22 requires payment to a “dependant” or a “legal personal representative” of the member.
- Review all existing BDBNs pursuant to the terms of the deed to ensure their validity. It is generally considered to be best practice to have a deed that does not adopt the strict SIS regulation BDBN criteria.