Posted by: Kylie Wilson
The recent Supreme Court decision in Munro v Munro [2015] QSC 61 highlighted again the consequences of invalid Binding Death Benefit Nominations that are not prepared in accordance with the terms of the Trust Deed of the relevant Self Managed Superannuation Fund.http://archive.sclqld.org.au/qjudgment/2015/QSC15-061.pdf
It is timely therefore to consider whether or not a Binding Death Benefit Nomination should be put in place at all. It is all too common for Binding Death Benefit Nominations to be signed by clients with the documents that establish their SMSF. However, in our view, no Binding Death Benefit Nomination should be prepared for a client unless it is prepared as part of the overall estate planning strategy for the client.
Below are two different case studies to highlight the issues that need to be considered when determining whether or not a Binding Death Benefit Nomination should be put in place.
- Jack and Jill are married with three children. Jack has been running his own plumbing business but has never given much thought to asset protection. He runs the business as a sole trader in his own name.
- Jill is killed in a car accident and at that time Jack is being sued for negligence as a consequence of some faulty plumbing work. Jack and Jill have their own SMSF and when their SMSF was established they signed valid Binding Death Benefit Nominations to direct each other's death benefit 100% to their spouse.
- The Binding Death Benefit Nomination directs Jill's superannuation death benefit directly to Jack where it will be an asset available to be accessed by creditors. Without the Binding Death Benefit Nomination the Trustee of the Self Managed Superannuation Fund (Jack or a corporate trustee of which Jack is a director) would have retained discretion to direct the death benefit away from Jack where it was not accessible by creditors.
The above case studied can be compared and contrasted with the following case study:
- Bob is a lawyer and decides to do his own Binding Death Benefit Nomination without reviewing the terms of the Trust Deed for his Self Managed Superannuation Fund.
- Bob and his second wife Wendy are both directors of the corporate trustee of the Self Managed Superannuation Fund.
- Bob's binding death benefit nomination directs his death benefit to the children of his first marriage. However, the trust deed for his Self Managed Superannuation Fund provides that Death Benefit Nominations are not binding on the trustee.
- On Bob's death Wendy becomes the sole director of the corporate trustee of the Self Managed Superannuation Fund, and elects not to pay out the death benefit to Bob's children from his first marriage, contrary to the Binding death benefit direction.
The above case studies are designed to highlight some of the reasons why Binding Death Benefit Nominations need to be considered carefully. It should be ensured before such a document is signed that:
- There is a reason it should be put in place;
- If it should be put in place that it directs the death benefit to go where the client actually wants it to go; and
- It is valid and enforceable.
