SMSF Binding Death Benefit Nomination (updates your SMSF Deed as well)

SMSF Binding Death Benefit Nomination Book Cover
  • SMSF Binding Death Benefit Nomination

  • $397 includes GST

SMSF Binding Death Benefit Nomination – what happens to Super when you die?

Superannuation is for your retirement. However, a dead person no longer needs retirement money. Therefore, at death, the Superannuation leaves this wonderful low taxation and asset protection vehicle.

Superannuation is paid out at death. The only exception is a Reversionary Pension to a spouse or young child.

What is a Binding Nomination?

But who gets your super at death? An SMSF Binding Death Benefit Nomination directs where your super goes at death. It either goes to a person (dependent) or into your Will.

A Binding Nomination is a direction by a fund member. This is to the superannuation fund trustee. It forces the trustee to pay the member’s death benefits in a certain way to:

  • the member’s dependents; or
  • the member’s legal personal representative (LPR).

The LPR is the executor named in your Will. Or, if you have no Will to your Administrator appointed by the court.

What is the difference between a binding and non-binding superannuation nomination?

In superannuation, the two death benefit nominations are binding and non-binding. Both decide how your superannuation death benefits are distributed at your death. However, they operate differently:

  1. Binding Nomination: A binding death benefit nomination directs the trustees of the superannuation fund exactly how to distribute your death benefits. The trustees must follow this nomination as long as it complies with the super fund’s rules and the nomination is valid. A binding nomination needs to be renewed every three years unless it is a Legal Consolidated non-lapsing binding nomination.

  2. Non-binding Nomination: A non-binding death benefit nomination provides guidance to the trustees but does not bind them to follow the instructions strictly. Trustees will consider your nomination, but they have the final discretion to determine how to distribute the death benefits. They may consider other factors such as the financial needs of dependents, the 32% tax on super going to adult children or your relationship with the nominees at the time of your death.

The choice between binding and non-binding nominations affects how securely your intended beneficiaries will receive the benefits and how much flexibility the trustees have in distributing your superannuation upon your death. Like a Will, it is essential to regularly review and update your nomination to reflect your current wishes and relationship circumstances.

Is Superannuation an estate asset?Binding death benefit nomination in your smsf rule from the grave

However, your Superannuation is not an estate asset. It does not automatically go into your Will. What happens if you have no binding nomination? The SMSF trustee pays out your Super as it sees fit. Fight back. A binding death benefit nomination overrides the trustee’s discretion.

If your super goes to an adult child then the tax rate is up to 17% or even 32% tax. A superannuation testamentary trust in your Will potentially reduces that non-dependency death tax to zero.

Why use an SMSF death benefit binding nomination?

SMSF Binding death benefit nominations provide certainty. They ensure that upon your death, your super is paid according to your wishes. It removes the SMSF trustee’s discretion.

If there is no binding death benefit nomination, then the only condition is that the trustee’s decision to pay the benefits is ‘fair and reasonable’. See Stock (as Executor of the Will of Mandie, Deceased) v N.M. Superannuation [ 2015] FCA 612.

Without a binding nomination, the Superannuation trustee has unfettered discretion. This is to pay the benefits as it deems appropriate. The trustee:

  • is only bound by the superannuation trust deed; and
  • is not bound by any supplementary direction – your wishes and Will are not relevant.

Who is the trustee of your Self-Managed Super Fund? Is your trustee your second wife? Is it only the children of your first marriage? It is just one of your children?

The SMSF Trustee can and often does, greedily transfer the superannuation just to themselves. This is unless you make an SMSF non-lapsing binding nomination.

Can my Will control where my superannuation goes?

Can a Will control your superannuation death benefits? The courts continually say no.

Consider the old Superannuation Complaints Tribunal’s 2012 decision D11-12/066. The dead wife ‘forgot’ to sign a binding death benefit nomination. In fact, she signed no nomination at all.

Instead, she signs a Will. Her Will appoints her defacto husband, son and daughter as her Executor. Executors are also called ‘legal personal representatives’ (LPR).

It is confusing. This is because nomination forms have to use only one expression. This is a ‘legal personal representative’. The binding nomination forms cannot use, perhaps, more useful expressions such as ‘my Will’, ‘my estate’, or ‘executors’. Instead, you only use the expression ‘legal personal representative’ in a superannuation-binding nomination.

The Specific Gift in the Will gives her Superannuation to only her husband. 

Correctly the trustee of the superannuation fund:

  • ignores the Will
  • notes that there is no binding nomination.

Without a binding nomination, the super goes into the Will. The super is paid out under the terms of the Will. It no longer goes all the husband. 

The husband challenges the decision. He argues that it is unfair and unreasonable. This is given that his wife left a Specific Gift of the superannuation just to him.

The husband desperately argues that this Specific Gift is the death benefit direction. (Why do people do this? They always lose.)

As is always the case, the Tribunal upholds the decision of the superannuation trustee. This is for the trustee to distribute the superannuation benefit to the deceased’s estate. This is held as fair and reasonable under the law. The trustee’s decision is acceptable under the superannuation deed and the superannuation law. The Tribunal goes further and states it is the correct decision.

It is silly and wrong to believe that superannuation is controlled by a Will.

Sure, a Superannuation Testamentary Trust in a Will can get rid of the 32% death tax on superannuation. But it cannot force the superannuation trustee to pay the super into the Will, in the first place.

Here are lost cases of people who do not believe me:

  • Hill v Van Erp (1987) 188 CLR 159
  • Badenach v Calvert [2016] HCA 18
  • Rockman v Fast [2016] VSCA 262
  • Howe v Fischer [2014] NSWCA 286
  • Riz v Perpetual Trustee [2007] NSWSC 1153
  • Webb v Teeling [2009] FCA 1094 

Does the SMSF Deed allow for Binding Nomination?

Many SMSF Deeds state that a binding nomination is only completed on the exact Nomination Form contained in the Deed. However, most Nomination Forms don’t comply with the new laws. Therefore, the SMSF can’t have binding nominations.

The bundle of documents you are about to build corrects faulty deeds and nomination forms. The documents also update the SMSF Deed as well. For example, it allows 6 member funds. You also get a fully compliant SMSF Nomination Form as part of the bundle.

Legal Consolidated also updates your SMSF Deed. This ensures that your SMSF can set up binding nominations.

Build the SMSF Binding Death Benefit Nomination. The pack includes:

  • Our cover letter of advice
  • Deed of Variation – this updates your SMSF Deed to allow for binding death benefit nominations
  • Death Benefit Agreement (binding on Trustee and does not expire)
  • Updated Product Disclosure Statement. 

Who gets my Super at death?

You can only nominate a:

  1. superannuation dependent; or
  2. legal personal representative (which is the trustee in your Will)

A ‘dependent’ includes:

1. your spouse and de facto (includes same-sex)
2. your children of any age (including adopted)
3. any person financially dependent on you
4. any person in an interdependency relationship with you
5. your ‘legal personal representative‘ – the executor in your Will (LPR).

Adult children pay 32% tax on their Super

Your adult children pay 17% or 32% tax on your Superannuation. The death tax is on the concessional amount. Put a ‘Superannuation Testamentary Trust’ in your Will. The Super Testamentary Trust seeks to reduce the death tax to zero. You then nominate, in your binding nomination, your ‘legal personal representative’. You do this by ticking the ‘legal personal representative box’. Your Super then goes into your Will. The Super Testamentary Trust seeks to reduce the super death tax to zero.

‘Legal Personal Representative’ v’s ‘my estate’ – Munro v Munro

If you have a Superannuation Testamentary Trust in your Will then you should leave the superannuation so it goes into your Will. But in the binding nomination, you don’t use the expression ‘my estate’ or ‘my Will’. Instead, you only use the expression ‘legal personal representative’. Our binding nominations comply with Munro v Munro [2015] QSC 61.

See what happens if you use a website that is not a law firm to build your binding nominations: /many-binding-death-benefit-nominations-built-on-non-law-firms-websites-don’t-work/

How can I control where my Superannuation goes at death?

Three things control where your Superannuation goes at death:

  1. Trust Deed
  2. Trustee’s discretion
  3. Binding Nominations

Four ways to deal with your Superannuation at death:

1. do nothing: The trustee or the SMSF deed) decides where your super goes at death

2. non-binding nomination may help the trustee decide, but the Trustee may just ignore it

3. binding death benefit nomination that expires every 3 years – provided you die within the 3 years your Trustee must follow your binding nomination – it is binding on the Trustee

4 Legal Consolidated non-lapsing binding death benefit nomination – never expires and it binds the Trustee

The Legal Consolidated Deed of SMSF Variation you are building allows you to opt for any of these.

Amend both the SMSF Deed and Binding Nomination.

High Court in Hill v Zuda Pty Ltd

Yes, you must update both the SMSF Deed and provide for the Binding Nomination form. We do both. This is why binding nominations are controlled by:

  • Section 59 Superannuation Industry (Supervision) Act 1993 (SIS Act)
  • Regulation 6.17A Superannuation Industry (Supervision) Regulations 1994 (SISR)

But they do not apply to Self-Managed Superannuation Funds. See Hill v Zuda Pty Ltd [2021] WASCA 59. Confirmed by the High Court in Hill v Zuda Pty Ltd [2022] HCA 21.

In Hill v Zuda, the SMSF binding death benefit nomination (BDBN) fails. This is because the SMSF Deed bizarrely requires that the nomination complies with Regulations 6.17A. This is an extra burden that the SMSF did not, otherwise, have to overcome. Anyway, the nomination did not comply with reg 6.17A. This was because it had these extra hurdles:

  • lapsed after 3 years, and
  • was NOT witnessed by two people

Can SMSF provide non-lapsing binding nominations?

I started practicing in 1988. At that time we did not have the answer to that question. We also did not know whether we needed one or two witnesses for a non-lapsing binding nomination.

It was 20 years later that the ATO answered. SMSF Determination 2008/3 confirms that section 59 SIS Act and Regulation 6.17A SISR do not apply to SMSFs. In Determination 2008/3 the ATO states:

… the governing rules of an SMSF may permit members to make death benefit nominations that are binding on the trustee, whether or not in circumstances that accord with the rules in regulation 6.17A of the SISR.

The ATO confirms that it is possible to draft an SMSF’s trust deed to allow the binding death benefit nomination to last more than three years.

From that point, your SMSF Deed can set its own peculiar rules about death benefit nominations. These are binding on the SMSF. They do not have to follow the rules set in Regulation 6.17A.

However, ATO statements are not law. We do not elect ATO officials. The Court follows legislation. It does not blindly follow what the ATO thinks the laws are saying. More important these cases say the SMSF Deeds can allow for binding nominations that can exist longer than 3 years:

When does an SMSF BDBN normally lapse under Regulation 6.17A(7)?

Regulation 6.17A(7) states a BDBN lapses:

  • after 3 years from the day, it is signed
  • unless resigned by the member; or
  • the governing rules fix a shorter period 

An SMSF BDBN now has additional requirements. It must comply with the SMSF Trust Deed. Let us say you follow all the rules. But the SMSF Deed has a ‘special’ additional rule. If you do not follow that ‘special’ additional rule then the nomination fails.

For example, I am looking at a new SMSF Deed built on an SMSF platform. It requires that the BDBN be on an attached form. However, the attached form only has one witness and a few other mistakes. So there is no way you can do a BDBN for this SMSF Deed. The Deed needs to be updated. Gullible accountants pay money each month to get these ‘free’ SMSF Deeds, but the accountant remains responsible for the documents. 

That is why when you build our SMSF binding nomination pack, we update your SMSF Deed as well.

Facts of the High Court’s Hill v Zuda

Zuda Pty Ltd is the trustee of the Holly Superannuation Fund, an SMSF. A member dies. His daughter challenges his BDBN. This is on the basis that it did not comply with regulation 6.17A.

The West Australian courts followed earlier decisions in other states that found that BDBNs in SMSFs do not have to comply with regulation 6.17A.

The High Court confirms that regulation 6.17A does not apply to BDBNs in SMSFs.

SMSF Binding Nominations need special care

A BDBN looks like a simple document.

However, consider:

  • Superannuation Industry (Supervision) Act 1993 (Cth) (SISA)
  • Superannuation Industry (Supervision) Regulations 1994 (Cth)  (SISR)

Binding nominations have been available since 1 July 1999.

But there are still problems and complexity.

SISA and SISR can be interpreted so that SMSFs are not allowed to have non-lapsing binding death benefit nominations. This is not the case after Hill v Zuda.

Consider the case of Hill v Zuda Pty Ltd [2021] WASCA 59.

The case confirms that the restrictions in  SISA93/SISR94 do not apply to legally prepared BDBNs in SMSF Deeds.

Therefore, a BDBN can be drafted to be non-lapsing in an Australian Self-Managed Superannuation Fund.

Super Binding Nomination wrong three times in Munro v Munro

Mr Munro, a lawyer, loved his two daughters from his first marriage. As in Cinderella, his second wife did not feel that love. His Will gave $350,000 to his second wife and the remainder of his huge estate to his two beautiful daughters. Mr Munro assumed that his Self Managed Super Fund (SMSF) would be included as part of his Will, as per his Superannuation Binding Death Benefit Nomination.

Imagine you are getting your affairs in order. To remove the trustee of your SMSF’s discretion you sign a Binding Nomination. This forces your Super into your Will, releasing the second wife from temptation. To draft the Binding Nomination, you use the wording provided by the accountant and financial planner: “to trustee of deceased estate”. Mr Munro should have written “to my legal personal representative”.

This is interesting because super going to children over 18 suffer up to 32% tax immediately payable at your death. But super going to a wife does not suffer any tax.

This is how to build a Binding Death Benefit Nomination.

Non-lapsing Binding Death Benefit Nominations Munro v Munro – exact or not binding

This all sounds quite reasonable, doesn’t it? Unfortunately, the Binding Nomination had a minor, but fatal, drafting error. The cumulative knowledge of Mr Munro, his accountant and his financial adviser failed to realise that Binding Nominations must only nominate:

  • the member’s “dependants”, or
  • the member’s “legal personal representative” 

Sadly, neither phrase was used. Even though his intention was clear, the court, in Munro v Munro [2015] QSC 61, took the view that the Binding Nomination was faulty and therefore not binding. This, unfortunately, gave his second wife, as trustee of the SMSF, the discretion to pay all the Super benefits directly to herself, and she did.

To compound Mr Munro’s mistake, there was no backup plan. Good sense requires that his daughters have joint control of Mr Munro’s SMSF after he dies. At Legal Consolidated, we create an Intergenerational Corporate Trustee Structure. This allows Cinderella to share control of the Super Fund with the stepmother.

Bitter from their loss, the Munro daughters are free to turn to the accountant and financial adviser for the faulty Binding Nomination.

There are 3 other common problems with Binding Nominations:

  1. Misunderstanding of the three-year expiry rule: 6.17A
  2. Poorly drafted SMSF deeds and SMSF updated Deeds requiring strange wording
  3. Dissonance with mutual Power of AttorneysMedical / Lifestyle POAs and 3-Generation Testamentary Trusts (containing Divorce Protection Trusts).

Can my SMSF Binding Nomination be challenged?

Wooster v Morris [2013] VSC 594

In Wooster v Morris the Husband and his second Wife are the trustees of their Self-Managed Super Fund. (Sure, most people have a company as trustee of their SMSF. But it is legal for humans to be the trustees of their SMSF, instead of the corporate trustee.)

The Husband has two beautiful daughters from a previous relationship.

The Husband makes a BDBN to his daughters. His daughters are also the executors of his Will.

The Husband dies.

After her husband’s death, the second Wife appointed her son as co-trustee of the SMSF. Together they swap themselves from human trustees to a corporate trustee. Of course, the second Wife is the sole director and shareholder of the corporate trustee.

His second wife ignores the BDBN. This is on a technical point. The BDBN is never given by the Husband (as a member) to his second Wife (as one of the trustees of the SMSF). The second wife never gets the BDBN in her capacity as trustee of the SMSF.  Her Husband’s BDBN is not binding because it is never formally ‘delivered’ to her. Interesting argument.

As the Binding Death Benefit Nomination appears not to be valid the second Wife exercises her discretion. This is the controller of the SMSF’s corporate trustee. No surprises here. She gives herself all of her Husband’s superannuation in the SMSF.

But the two daughters are executors of their father’s estate. Can not the Will control the superannuation in the SMSF? The answer is, of course, no. The super has to somehow get into the Will before the executors can take control of the super. The executors are all-powerful over assets in the estate. The executors are all-powerful over assets in the Will. But superannuation does not automatically become part of a dead person’s estate.

After a huge and expensive court battle, the second Wife loses. The ‘technical’ fault is not enough to invalidate the husband’s BDBN to his two daughters. (As superannuation lawyers, we are fascinated with what other ‘mistakes’ you can make in an SMSF and still get a valid outcome.)

The second Wife is required to hand over the super to the Husband’s two daughters. To add insult to injury cover everyone’s costs of the litigation.

What if the dead person lies? Is the binding nomination still valid? “Estoppel claims”
Lucas v Salman

NSW Supreme Court gave two stepsons $211,893: This is because:

  • Their dead father-in-law promised that they get his superannuation. When he died. But he lied.
  • The father-in-law made the promise in exchange for the stepsons not claiming their late mother’s superannuation and estate. (This is different from a Contractual Will Agreement.)

Such is the dispute in Lucas v Salman [2022] NSWSC 1301.

Facts of Lucas v Salman

The case is about an agreement. The father-in-law promises to give the step-children his super when he dies. This is if the step-children promise to not challenge their dead mother’s estate.

The step-children honour the promise.

After the father-in-law dies it then comes to light that he lied. He does not leave the super to the boys.

The step-sons argue that the father-in-law verbally promised them his super and a quarter of mum’s estate. This is called a “verbal representation”.

The “representations” are allegedly made in exchange for the boys not claiming the estate and superannuation of their late mother. Therefore, the father-in-law takes the estate and super of his dead wife. And the boys patiently wait for him to die, so they get what is left. 

This is common. And the agreement is usually locked in by a separate document called a Contractual Will Agreement. These are built by Accountants and Financial Planners as a matter of course for Wills in second marriages. 

Father-in-law secretly makes a new Will to cut out the children

His wife dies. He then quietly makes a new Will leaving the estate to:

  • his brother (also the executor of his estate);
  • his new spouse at the time of his death (talk about rubbing salt into the wound); and
  • his two biological children from his first marriage

The stepsons get nothing.

The father-in-law’s superannuation of $211,893 is paid into his bank account.

The boys seek two remedies:

  1. breach of contract and estoppel for the father-in-law’s representation (the lie); and
  2. challenge both the father-in-law and mum’s Will – family provision application Succession Act 2006 (NSW).

Who wins: son-in-law dead father?

The boys win on the breach of contract argument.

The boys get the value of the superannuation: $211,893 (plus interest).

However, the boys failed to prove there was a contract with their father-in-law. Because it is ‘verbal’ these things are hard to prove. But the Court finds there is an agreement (called a ‘representation’) that the boys:

  • do not challenge their father-in-law’s getting their mother’s superannuation ($202,000)
  • in exchange for getting his superannuation upon his death.
This is called an ‘equitable estoppel’ And it goes like this:
  1. You promise to, say, give me the farm if I don’t go to university and stay on the farm – representation
  2. I do stay on the farm – so I perform my part of the bargain – in good faith – based on your promise
  3. You change your mind – you break your promise – and leave the farm to another person
  4. The court forces the promise to come true and gives me the farm – equitable remedy

Similarly, in Lucas v Salman, the father-in-law makes the promise: ‘You the super if you let me have your mum’s super’. The boys carry out their side of the bargain. They do not challenge mMum’sestate. The father-in-law breaks his promise (representation). The Court comes to the rescue. It intervenes and carries out the dead father-in-law’s representation.

The ‘estoppel’ is proved. And the equitable remedy is to fulfil the promise that the boys get their father-in-law’s superannuation. Accordingly, the Court awards the boys the superannuation. 

What about the boys getting a quarter of the dead father’s estate?

Sadly, the Court found that those representations did not establish an entitlement to a quarter share of the father-in-law’s estate. The Court states that a higher threshold for certainty applies to Wills. The words “looked after” are too uncertain to establish promissory estoppel for the father-in-law’s estate.

Can the boys challenge their father-in-law’s Will?

The Court dismissed the boys’ family provision applications. This is under the Succession Act 2006 (NSW). This is for both their father-in-law’s estate and their mother’s estate. Are the stepsons “eligible persons”? Yes. They are. This is for their father-in-law. But that is still not enough of these facts. Also, a ‘considered person clause‘ in a Will makes it harder to challenge the Will.

Can the boys challenge their mum’s Will?

In most states, you only have 6 months to challenge a Will from the date of Probate.

The Court stated that the boys were “out of time” to challenge their mum’s Will. Further, their father-in-law’s claim as the surviving spouse is stronger. And, in any event, the boys had already won on their estoppel argument.

Witnessing of BDBNs – do not cut corners

There are strict rules for witnessing binding death benefit nominations (BDBNs). There are strict rules to witness any document. As lawyers, accountants, and financial planners we follow the rules.

ASIC banned a financial adviser for 8 years for not signing the BDBN properly.

Two witnesses must witness a BDBN. Both have to be present at the same time. Both witnesses must be in the same room. National Australia Bank at one time allowed one person to witness a BDBN with only one witness. The second witness signs later. This is the case, even though the second witness did not see the signing.

At best you would have to be stupid to believe that is acceptable.

Consider this ASIC Media statement dated 6 May 2021:

21-096MR ASIC bans former Sydney adviser for eight years

ASIC has banned Sydney-based former financial adviser, Lisa Lee, from providing financial services for eight years.

Ms Lee was a representative of Australia and New Zealand Banking Group Limited (ANZ) between 5 June 2010 and 15 June 2017 and Infocus Securities Australia Pty Ltd between 19 September 2017 and 19 November 2018. She is no longer providing financial advice.

ASIC found that while a representative of ANZ, Ms Lee falsely witnessed the binding nomination of beneficiary forms for 17 clients, backdated documents, and falsified a client’s signature on documents.

Financial advisers must act with honesty and integrity in their dealings with clients. ASIC may ban a financial adviser if it has reason to believe that they are not a fit and proper person to provide financial services or that they are likely to contravene a financial services law.

Ms Lee’s banning has been recorded on ASIC’s publicly available Financial Advisers Register and the Banned and Disqualified Persons Register.

Ms Lee has appealed to the Administrative Appeals Tribunal for a review of ASIC’s decision.

ASIC’s Moneysmart website has useful information for consumers about choosing a financial adviser, how to complain about a financial adviser, and what to do if their adviser is banned

Australia and New Zealand Banking Group Limited falsely witnessed BDBNs, backdated documents, and falsified a client’s signature on documents.

In announcing the ban, ASIC mentions the failure to act with honesty and integrity and be of good fame and character, and the need to be likely to comply with the financial services law.

BDBN and Wills both require two witnesses

For a Will, there are two witnesses. They are both present and observe the will-maker signing the Will (or POA for that matter).

Consider Lewis v Lewis [2020] NSWSC 1306. The son prepared a Will on behalf of his Mum.

He could not witness his Mum’s Will. And if he did he is automatically excluded from benefiting from her Will. See R F Hill & Associates v Van Erp (1997) 188 CLR 159. The boy arranges for two neighbours to witness her Will.

The son goes out. He comes home. Mum had signed the Will before the witnesses had arrived. And she had gone to bed. 

The witnesses arrive. The son lets them know that Mum has signed. But gone to bed. Declaring: “This is not the right way to witness the will but I will have to deal with it at a later stage. Do you mind signing anyway?”.

This is not the correct procedure for either a Will or the signing of a superannuation-binding nomination.

What happens if the beneficiary himself dies before the superannuation is paid out?

In a Will, usually, you only need to outlive the Will maker by a minute. The gift from the Will maker’s Will is valid. This is the case even though the distribution from the Will had not happened before you died. The payout of superannuation benefits has different rules.

Webb v Teeling 

The facts of Webb v Teeling  [2009] FCA 1094:

  1. the superannuation member dies
  2. there is a valid nominating of the superannuation to a dependant
  3. the dependant is alive at the time the member died
  4. however, the defendant dies before the death benefit is paid
  5. the superannuation fund no longer wants to pay the superannuation to the now-dead dependent

Sadly, the court decided that the death benefit could not be paid to the dead dependant (or rather, their estate). This is because the dead dependant is no longer a ‘dependant’ of the dead superannuation member.

This problem does not arise if you have a Legal Consolidated 3-Generation Testamenary Trust Will. All such Wills contain a Superannuation Testamentary Trust. This is primarily to reduce the superannuation death taxes. But, it also means that the nominated entity is the ‘legal personal representative’ (LPR)  or in other words the Legal Consolidated Will.

As soon as the superannuation death proceeds are paid out into the Legal Consolidated Will the above rule no longer applies. This is another reason why Superannuation Testamentary Trusts in Wills is valuable.

Do I have to be of sound mind to sign a Binding Death Benefit Nomination for my Self-Managed Superannuation Fund?
van Camp v Bellahealth Pty Ltd

Most legal documents require that you be of ‘sound mind’ when you sign. The rules change for Wills.

In van Camp v Bellahealth Pty Ltd [2024] NSWSC 7 Dr Nespolon signs his superannuation nomination form the day before his death. (But he fails to transfer the shares in the SMSF trustee company, so the shares go into his Will.)

Facts of Camp v Bellahealth Pty Ltd

  • Dr Nespolon:
    • is the only member of his SMSF
    • is the sole director of his corporate trustee, Bellahealth Pty Ltd (Corporate Trustee)
    • on the day of his death in the hospital at the tender age of 57, he signs his Binding Death Benefit Nomination (BDBN
  • The BDBN directs that the Trustee pays Dr Nespolon’s member benefits to his de facto partner, Ms van Camp.
  • The Corporate Trustee claims the BDBN is not valid:
    • it claims that Dr Nespolon lacked mental capacity;
    • suffered undue pressure and unconscionable conduct by Ms van Camp; and
    • the BDBN is different to previous instructions and different to what was suggested in the older Will.

What does the Court consider when enforcing an SMSF Binding Nomination?

The court relied on various documentary evidence and witnesses. Dr Nespolon had various advisers, and many were required to give evidence regarding the advice they had provided and details regarding capacity. A large number of emails, phone calls, text messages, and meetings that Dr Nespolon had with his advisers formed part of the evidence.

In addition to his advisers, Dr Nespolon’s doctors, who witnessed the BDBN, gave evidence regarding his capacity at the time. There was also expert evidence presented by a doctor regarding the effects that various drugs would have had on Dr Nespolon’s mental capacity.

The decision of van Camp v Bellahealth Pty Ltd

The Court held that the Binding Death Nomination for the SMSF is valid.

The court applied Gibbons v Wright at 438:

“…the mental capacity required by the law in respect of any instrument is relative to the particular transaction which is being effected by means of the instrument and may be described as the capacity to understand the nature of that transaction when it is explained…

The essential general nature and broad operation of the BDBN is apparent from its terms, namely that Dr Nespolon, the sole member of the Fund, was specifying how his member benefits were to be paid on his death in a manner binding on the Fund Trustee, rather than leaving the decision as to how they were to be paid to the discretion of the Trustee.”

When evaluating Dr Nespolon’s capacity, the court spends a lot of time to see if the good doctor understood the consequences of creating the BDBN. Specifically, did he understand that all his member benefits would go directly to Ms van Camp, deviating from the instructions in his Will? A basic understanding of these matters, even with a straightforward explanation, is considered sufficient in this case. This is a similar test to the signing of a Will.

Q: Why didn’t Dr Nespolon transfer the shares in his SMSF corporate trustee to his mistress?

A: It is a good question. The shares (like all assets in your name) in the SMSF Special Purpose company go into your Will therefore the angry children get the shares in the Will. Allowing them to run amok, as they did. However, because:

  • the shares in the Special Purpose Company usually have a nominal value; and
  • anyone can own the shares in your corporate trustee

Dr Nespolon should have, also, transferred the shares in his SMF trustee to Ms van Camp.

I hate the generalise but I find many medical doctors are innocent fools when it comes to questions of finance. Everyone should get themselves both a financial planner and an accountant. They would have advised the good doctor to transfer the shares as well as the Binding Nomination.

Can a text message end a defacto relationship for a Binding Nomination?

In Nguyen v Australian Financial Complaints Authority [2024] FCAFC 77, the Full Federal Court ruled that a text message alone was insufficient to terminate a de facto relationship immediately before the sender’s death. Consequently, the court affirmed that the deceased’s de facto partner was entitled to the death benefit payment under the binding death benefit nomination stipulated under SIS regulation 6.21(2A). This demonstrates the legal complexities in confirming the end of de facto relationships for superannuation benefits.

Facts of Nguyen v Australian Financial Complaints Authority

Mr Pino Corbisiero (Pino) committed suicide in September 2019 holding a life insurance policy with the AMP Superannuation Savings Trust. The policy stated that a death benefit would be paid upon his death. The value of this death benefit was $1.1 million. It was intended to provide financial support to his beneficiaries.

On 6 December 2018, Pino Corbisiero completed a legally binding death benefit nomination. This document stated that on his death, 100% of the death benefit from his life insurance policy be given to his de facto partner, James Nguyen. The two had been in a continuous relationship for 13 years before this nomination.

Pino’s mother, as executor of his Will, contested the validity of the binding death benefit nomination because Pino and James Nguyen were no longer in a relationship at Pino’s death. This claim was based on a text message Pino sent to his sister shortly before he died. In the message, Pino indicated that he and James were no longer together. This raised questions about whether the nomination should still be honoured, leading to a legal dispute over the intended recipient of the death benefit. The message stated (errors original):

This is my will and testament as from 1st of September to whom it may concern I want to leave all my property and assets to my family to my brother and sister and my nieces and nephew only and no one else.  James receives nothing of my assets all for he has put me in the position or stage of my life where I had enough.  Can I also ask my family this only be family thing I want no friends of james to be there what so ever.  I am very sorry I Done this but I need peace and hopefully I get that now really sorry but please understand I happier now than before.

Toxicology reports revealed that at the time of sending the text message and at his death, Pino Corbisiero had both cocaine and alcohol in his system. This evidence could be significant in assessing his mental state and the reliability of the text message that purported to end his relationship with James Nguyen. Such factors are often considered in legal disputes involving the state of mind and intentions of the deceased at the time they made critical decisions or statements.

Decision of Nguyen v Australian Financial Complaints Authority

Justice Snaden, with Justices McElwaine and Meagher agreeing, ruled in favour of James Nguyen’s appeal. They found that the Primary Judge’s interpretation of the text message — suggesting that Mr Corbisiero’s relationship with James Nguyen had ended — was incorrect. The appellate court determined that the text message alone was not definitive proof of the relationship’s termination, thus upholding the validity of the binding death benefit nomination favouring James Nguyen.

Justice Snaden, in his judgment, agreed with the Primary Judge that a de facto relationship can be terminated without one party needing to communicate this intention directly to the other. However, he emphasised that in the absence of such direct communication, there must be some form of conduct that clearly demonstrates the individual’s intent to end the relationship. According to Justice Snaden, mere intention is not enough; there needs to be an actionable behaviour that clearly indicates the relationship is over, such as desertion, moving away with children, a refusal to cohabitate, or choosing to communicate only in writing. These actions are viewed as concrete manifestations that the relationship has indeed been terminated.

Justice Snaden, in his ruling, determined that the text message sent by Pino Corbisiero did not constitute an act that ended his relationship with James before his death. He emphasised that while a person’s suicide unambiguously ends their relationships, this act occurs simultaneously with their death, and therefore cannot terminate a relationship before death.

Given this interpretation, Justice Snaden allowed Mr Nguyen’s appeal, affirming that the absence of other conduct indicating an intent to end the relationship meant that the de facto relationship between Pino and James was still valid at the time of Pino’s death. As a result, James was entitled to receive Pino’s death benefit under the terms of the binding death benefit nomination. This decision highlights the importance of clear, demonstrable actions in disputes regarding the status of relationships at the time of death, particularly in legal contexts involving the distribution of assets and benefits.

Everyone was wrong in Nguyen v Australian Financial Complaints Authority

The Australian Financial Complaints Authority (AFCA) initially set aside this determination, arguing it was not fair and reasonable. The primary judge then set aside AFCA’s decision, leading to an appeal. The Full Federal Court, with Justices Snaden, McElwaine, and Meagher presiding, ultimately allowed the appeal, finding that the text message alone was insufficient to end the de facto relationship. How can the poor practitioner advise the client when such great institutions ebb and flow with different views?

Stamp duty on Legal Consolidated SMSF Deeds and variations?

Legal Consolidated SMSF Deeds are not dutiable. We draft them so that they do not need to be lodged for stamp duty. However, if the SMSF Deed is in the Northern Territory then you have to lodge the SMSF deed for stamping. 

Stamp duty in the Northern Territory for Legal Consolidated SMSF Deeds

A Legal Consolidated SMSF deed that relates to property in the NT (even if signed outside the NT) must be lodged with the:

    • NT Territory Revenue Office, GPO Box 1974, Darwin NT 0801

In the NT there is usually a ‘nominal’ fee of $20 (plus $5 for each duplicate deed). This is under section 2 of Schedule 1 and section 9B Stamp Duty Act 1978 (NT)). Upon signing you only have 60 days to complete and lodge the Stamp Duty Lodgement Form. The form is freely available from the NT Department of Treasury and Finance website.

Stamp Duty Requirements for SMSF Deeds in New South Wales

Legal Consolidated SMSF Deeds and our deeds that amend SMSFs are not dutiable for stamp duty in NSW. See 65(10)(a) Duties Act 1997 (NSW). You do not need to lodge our deeds for stamping. 

No stamp duty in Victoria for Legal Consolidated SMSF Deeds

No duty assessment is required for Legal Consolidated SMSF deeds that establish or amend the SMSF. See section 39 Duties Act 2000 (Vic). You do not need to lodge our deeds for stamping. 

How much stamp duty is payable on a Queensland SMSF Deed and variations?

When you build on Legal Consolidated’s website SMSF Deeds and SMSF Deed Updates there is no stamp duty. And you do not need to lodge such Legal Consolidated deeds for duty. See sections 9 and 10 Duties Act 2001 (QLD). If you are moving cash or stamp dutiable property into or out of the SMSF then you will need to pay stamp duty. But, as to the Legal Consolidated SMSF deeds themselves, they are not dutiable.

The stamping of Western Australian SMSF deeds and variations

No duty assessment is necessary for Legal Consolidated SMSF Deeds and deeds that amend an SMSF deed. See the Duties Act 2008 (WA). You do not need to lodge our deeds for stamping. 

Dealing with South Australian stamp duty for SMSF Deeds and variations

The good news here is that Legal Consolidated SMSF Deeds and SMSF Deeds of Variation are not dutiable. They do not need to be lodged. See Schedule 2, Part 2, Item 30 Stamp Duties Act 1923 (SA). However, such deeds need to be lodged if the deed moves assets or changes the interest in the underlying assets in the SMSF. For example, you move the $4m vineyard in the Barossa Valley from Mum’s account in the SMSF to Dad’s account in the SMSF.

Legal Consolidated SMSF deeds and variations are designed to not move or change any rights to the assets in the SMSF.

If your accountant is concerned, then out of an abundance of caution, lodge the Legal Consolidated SMSF Deed or variation at RevenueSA, GPO Box 1353, Adelaide SA 5001 and ask for the deed to be stamped ‘exempt’.

No stamp duty on Legal Consolidated ACT SMSF Deeds

Legal Consolidated SMSF Deeds and deeds of variation are drafted so that they have no stamp duty and are, also, not required to be lodged for stamping. See Duties Amendment Act 2008 (ACT). You do not need to lodge our deeds for stamping.

Tasmanian stamp duty on Legal Consolidated SMSF deeds and variations

Happily, Legal Consolidated drafts its SMSF Deeds and variations so that they neither suffer any stamp duty nor need to be lodged. You do not need to lodge our deeds for stamping.

The Australian Securities and Investments Commission (ASIC) is warning the financial advice sector about adhering to legal requirements for witnessing signatures. This comes after ASIC discovered that advisers were not properly witnessing binding death nomination forms for superannuation benefits.

ASIC is aware of a prevalent issue where financial advisers, or their staff, witness client signatures on binding death nomination forms without being physically present. Additionally, there have been instances where forms were backdated. Such practices do not comply with legal standards and result in the invalidation of the nominations.

Acting ASIC Chair Peter Kell said:

‘Improper and unethical practices around binding death nomination forms can lead to very poor consumer outcomes. Advisers, licensees and their staff who engage in these practices should consider this a final warning. AFS licensees have ultimate responsibility for the conduct of their representatives and need to effectively monitor and supervise their representatives.’

The proper signing of binding death nomination forms is important. This is because the form directs the trustee of the superannuation fund to pay superannuation and insurance benefits according to the account holder’s instructions. Improper witnessing of the form makes it invalid. This results in the death nomination rejection. The trustee may then choose to exercise its discretion in a manner other than by the account holder’s nomination, causing delays and uncertainty about the payment of the death benefit.

For help on signing see Munro v Munro [2015] QSC 061

Australian financial services (AFS) licensees and advisers have a professional and legal obligation to comply with the law. Taking shortcuts that result in important forms being invalidated and thereby jeopardising the account holder’s wishes does not meet the minimum advice and conduct standards expected by ASIC.

Best practice for accountants, advisers, and fund managers in witnessing Superannuation Binding Nomiatnions. Five rules.

1. Lawyer has signed off on the effectiveness of the Binding Nomination

Do not become involved in a binding nomination until you have evidence that a superannuation lawyer, such as Legal Consolidated, has prepared the SMSF documents. You may be a junior adviser or secretary and scared of your boss. But if you sign off it is you and you alone that will face the wrath of the regulators. The family will come for you decades later when the person dies. If you are in doubt then build our Binding Nomination Kit. It updates both the SMSF Deed and the non-lapsing process documents.

2. Train Staff on Their Professional and Ethical Obligations

AFS licensees must ensure that their staff are well-trained and understand their professional and ethical obligations. High standards of adviser professionalism, judgement, and integrity are crucial for maintaining consumer trust and confidence in the financial services sector.

3. Monitor and Supervise Representatives

ASIC expects licensees to maintain robust monitoring and supervision as key components of their risk and compliance frameworks. This involves regularly reviewing advisers’ conduct and conducting spot checks on key documentation to ensure it is correctly executed. Where irregularities appear, licensees must investigate promptly, possibly including contacting affected clients, remediating where necessary, and reviewing the adviser’s client files more broadly.

4. Remediate Consumers Where Misconduct is Found

Licensees must address any systemic problems resulting from their advisers’ conduct. Where needed, they should implement processes to remediate their clients promptly, fairly, and transparently. ASIC’s Regulatory Guide 256 outlines the principles of client review and remediation that should be applied universally, even beyond personal advice to retail clients.

5. Identify Breaches promptly

ASIC expects licensees to have effective systems for identifying, escalating, and reporting breaches promptly. Delays or inadequacies in reporting can signal broader compliance and cultural issues to ASIC, prompting closer examination.

By adhering to these guidelines, AFS licensees can ensure that their advisers correctly witness binding nominations, thereby upholding legal standards and protecting consumer rights.

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