THE Superannuation Industry (Supervision) Act 1993 (SIS Act) and the Superannuation Industry (Supervision) Regulations 1994 (SIS Reg) governs the regulation of superannuation in Australia. SIS Reg 6.22 states that death benefits must be paid to the deceased member's legal personal representative and/or their dependants, unless no one can be found in which case they must be paid to an individual. Therefore if a person(s) is nominated as the recipient(s) of a deceased member's superannuation benefits is not a dependant of the deceased member the nomination will fail. Section 10(1) of the SIS Act defines dependant to include the spouse, children and anyone with whom the deceased has an interdependency relationship. Unfortunately there is a tendency for people to nominate those people who are close to them as a beneficiary of their superannuation death benefits however the nomination will fail of they do not fit within the definition of dependant. It may be obvious however this type of problem often occurs in practice.
Section 59(1A) of the SIS Act allows a member to give notice to the trustee of the superannuation fund requiring the trustee to provide death benefits to the legal personal representative and/or the dependants of the member on their death. Reg 6.17A then sets out the requirements for a valid Binding Death Benefit Nomination. The nomination must:
(a) be in writing
(b) be signed and dated by the member in the presence of 2 witnesses who are:
(i) over the ager of 18; and
(ii) not nominated to receive a benefit in the notice (but may be beneficiaries of the person's estate, if the legal personal representative is nominated); and
(c) must contain a declaration signed and dated by the witnesses stating that the notice was signed by the member in their presence.
The wording of Reg 6.17A is problematic and often causes significant problems. Reg 6.17A states that the document must be dated not only by the member but also by the two witnesses. One of the first things a lawyer will look at is the dating of the document as often the document has been clearly dated by one person only – often the member themselves or one of the witnesses to the document. If the three dates look like they have been written on the document by the same person then it is likely that the Binding Death Benefit Nomination will be invalid.
Thankfully SMSFD 2008/3 confirmed that Section 59 and Reg 6.17A do not apply to Self Managed Superannuation Funds. However when preparing Binding Death Benefits Nominations for Self Managed Superannuation Funds there are three extremely important rules. The first rule is read the deed, the second rule is read the deed and the third rule is read the deed.
Occasionally Self Managed Superannuation Fund trust deeds state that a valid Binding Death Benefit Nomination must comply with the Superannuation Laws. The deed then goes on to define Superannuation Laws to mean the SIS Act and SIS Reg. In these cases a valid Binding Death Benefit Nomination would need to comply with Reg 6.17A. Read the deed.
In Donovan v Donovan [2009] QSC 26 Fryberg J stated that superannuation legislation is convoluted and that it is easy for trustees and members to make mistakes. In Munro v Munro [2015] QSC 61 the nomination was invalid because the member (a lawyer who obviously did not practice in this area of the law) wrote the words "trustee of deceased estate". Does "trustee of deceased" mean legal personal representative as defined in Section 10 of the SIS Act? In this case the Court found that it did not and the nomination was not binding on the trustee.
Another area where possible problems can occur is where there is in place both a Binding Death Benefit Nomination and an automatically reversionary pension. What happens? The answer is not clear and again will require a thorough reading of the trust deed. However the solution is easy – hardwire the trust deed to create certainty.
Some trust deeds allow a member to put in place a death benefit rule or what is colloquially called a SMSF will. These types of documents are typically non-lapsing. However if they are put in place it is absolutely crucial that they be reviewed regularly as unforeseen consequences can occur if circumstances change. They should be reviewed annually when the financial advisor sits down with their client. However non-lapsing nominations like death benefit rules and SMSF Wills have significant advantages as they will continue to be effective in the case of incapacity. Remember that a Binding Death Benefit Nomination cannot be renewed if the member lacks capacity.
There is considerable argument as to whether an attorney can make or renew a Binding Death Benefit Nomination. The argument will continue until legislation considers the situation. However some trustees do accept Binding Death Benefit Nominations from the attorney for a member. I would strongly recommend that specific clauses be inserted in the members Power of Attorney in this regard. It may also be prudent to amend the trust deed for a Self Managed Superannuation Fund to state that the trustee must accept a Binding Death Benefit Nomination for a member's attorney.
In conclusion it is the writer's view that the implementation of valid Binding Death Benefit Nominations is far more difficult than is necessary. However superannuation is now commonly a significant asset when organizing a client's estate plan. If financial advisors and lawyers work closely together to advise clients appropriately and put in place well drafted documents there is no reason why the use of Binding Death Benefit Nominations cannot be an effective estate planning tool.
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