Many will be familiar with binding death benefit nominations for their superannuation funds. These nominations direct the trustee of the fund to pay the benefit upon a member’s death in a particular way (generally to “dependants” in particular proportions, or to the legal personal representative (executor of the will or trustee of the estate) of the member.
In the absence of the binding death nominations, it is for the trustee to decide which dependants are to receive the benefit, and in what order.
Under the superannuation legislation, there are particular requirements for valid nominations, eg, they require two independent witnesses, and unless authorised by the superannuation trust deed to be non-lapsing, they will lapse after 3 years. The importance of this is that if a nomination is not done correctly, it does not bind the trustee who will then usually consider competing claims of dependents, whether or not that represents the wishes of the member. So first it is critical when estate planning to get the the nominations right, it is also critical to ensure that the they conform with the trust deed for the fund (you’d be surprised at how often they do not, and often even the form attached to the trust deed does not conform to the wording of the trust deed).
With superannuation often forming a large part of the wealth distributed on a person’s death, the nominations are often challenged. As an example, let’s say that Joe dies. He has a child to his first marriage, now 25 years old, and has left a $1M superannuation benefit with a binding nomination to that child. His second wife and the child don’t get along. Under his will she gets his estate which is his home worth $1M, and $100K in the bank. If the nomination is valid, that is how the estate will be distributed. If it isn’t, then his new wife can press for part or all of the superannuation death benefit. If it was paid into his estate, then she would receive all of it, and the child would miss out entirely.
A number of challenges to binding nominations are whether they comply with particular provisions in the superannuation regulations, reg 6.17A which sets out formal requirements. The High Court has recently confirmed that it does not apply to self managed superannuation funds.
This means that for industry funds, it is critical that the nominations comply with the trust deed and regulation 6.17A. For a SMSF, the nomination does not have to comply with reg 6.17A save to the extent that the trust deed requires, but it has to comply with the fund deed.
For advice in relation to wills and estates, contact Jessica Murray (firstname.lastname@example.org) or Peter Muller (email@example.com).