A case was heard this year in the Supreme Court, where a binding death benefit nomination was made, but that was in fact held in court to be non-binding.

Mr Munro and his wife, Mrs Munro, were trustees and members of their SMSF.

Mr Munro died, and about 2 years before his death he drafted a BDBN, specifying that 100% of his benefits should be paid to “The Trustee of his Deceased Estate.” His intention was that his death benefits be distributed in accordance with his Will, and there was provision in his Will for his 2 daughters from a previous relationship. These 2 daughters were not Mrs Munro’s daughters.

The SMSF Trust Deed provided that if a Binding Death Benefit Nomination complied with the Deed and with Superannuation law, then the Trustees of the SMSF must follow the Binding Death Benefit Nomination, thereby removing any discretion of the SMSF Trustees.

But, in terms of the validity of the Binding Death Benefit Nomination, one of the provisions was that the nominated beneficiary could be a dependent of the member, or the member’s legal personal representative, which in a SMSF context, generally means “executor.” So, the term “executor” is often used interchangeably with the term “trustee”, but the terms and roles are distinct.

The court found that because the word “trustee” was used in the Binding Death Benefit Nomination (remembering Mr Munro nominated “The Trustee of his Deceased Estate”), it was invalid and the trustees of the SMSF (now Mrs Munro and her biological daughter who was appointed after Mr Munro died) had the discretion as to whom they paid the benefits.

By now you will have guessed that the trustees did not pay the death benefits to Mr Munro’s estate!

Now, in this case, Mr Munro was a lawyer; and he also took advice from his accountant and financial planner in terms of his Binding Death Benefit Nomination. Whilst it’s possible that Mr Munro’s accountant and financial planner could now be in hot water with Mr Munro’s daughters, this story stresses the importance of having an adviser who is well versed in SMSF legislation.

Tracey Ferguson – thanks for listening.

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