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