A case in the Supreme Court of New South Wales has demonstrated the importance of ensuring a binding death benefit nomination (BDBN) is properly executed and witnessed, particularly in complex SMSF estate planning situations.
In the matter of Gainer Associates Pty Ltd [2024] involved a situation where the sole member, director and shareholder of an SMSF corporate trustee died shortly after preparing a BDBN and will.
The deceased member’s will left a luxury car, art collection and a legacy of $1 million, along with a life estate in her home to her de facto partner, while the BDBN directed her superannuation interest of about $7 million to her estate.
However, the BDBN was declared invalid as it was only witnessed by the deceased member’s solicitor and lacked a second signature, creating uncertainty about how the superannuation benefits should be handled.
NSW Trustee and Guardian, as executor of the estate, engaged a chartered accountant and liquidator to act as the SMSF trustee.
Following an extensive claim-staking process, which involved submissions from both the estate and the partner, the trustee proposed to split the death benefits, with one-third going to the partner and two-thirds to the estate.
The partner subsequently challenged the trustee’s decision, arguing no reasons were provided and as a dependant he should have been prioritised. The appointed SMSF trustee sought legal advice and applied to the court for judicial guidance.
In handing down its decision, the court advised the trustee was justified in making the decision to distribute the benefits as proposed and rejected the assertion the trustee had failed to exercise its discretion properly.
“The determination of the payment of the death benefit is within the discretion of the trustee. The exercise of the discretion must be made in good faith, upon real and genuine consideration and in accordance with the purposes for which the discretion was conferred. Neither the legislation nor the case law imposes an obligation to consider a dependant in priority to the estate,” Justice Rees stated.
Cooper Grace Ward partner Hayley Mitchell, who was part of the legal team that acted on behalf of the appointed trustee in the proceedings, noted the case reinforced the importance of careful preparation when planning for the death of a member.
“The decision in Gainer reinforces the importance of the choice of executor. Advisers at the planning stage need to take care to identify any other roles the executor will, by virtue of their appointment, be required to carry out,” Mitchell said.
“In relation to superannuation funds, any risk of non-compliance with the legislation or breach of the trust deed needs to be identified early on and proactive steps should be taken to minimise the adverse consequences or avoid the non‑compliance in the first place.
“While a trustee does not need to provide reasons for its decision, it should be in a position to demonstrate that it followed a proper decision-making process.”
