A Modern Day Cinderella Story

If there is ever the chance your step family would not see eye to eye, make the hard decisions for them ahead of time and make them legal. If there is ever the chance your step family would not see eye to eye, make the hard decisions for them ahead of time and make them legal.

The Cinderella like tale of Munro v Munro and how a simple preventable mistake, broke the hearts of his two daughters

To really understand this real-life story, to need to understand two simple legal facts about self-managed super funds:

  • The trustee of an SMSF has discretion who to give the balance of your SMSF account to when you pass away.
  • To remove this discretion and ‘bind the decision of the trustee to follow your instructions’, you need to sign a legally recognised Binding Nomination Form, making your wishes clear and override the discretion of the trustee.

Sounds simple enough, right?

Jump Ahead

Case Study

Mr Munro, a lawyer, deeply loved his two daughters from his first marriage. His second wife didn’t feel the same way.

He died at age 66 and in his Will he;

  • left $350 000 to his second wife, and
  • the remainder of his huge estate to his two beautiful daughters.

When it came to who would get the balance of his superannuation, he just assumed his SMSF would simply be included with all his other estate assets as part of his Will; as per an agreement he'd documented and provided to his daughters. 

The mistake that broke their hearts

Mr Munro’s mistake was, he signed a Binding Nomination document that had a drafting error in it (- far worse than a typo because it changed the legal status of the document). 

It didn't actually use the required legal wording of the legislation, nomination of either:

a) the member’s “dependants”, or
b) the member’s “legal personal representative”.

Good intentions are not enough

Even though his intention was clear, the court, in Munro v Munro [2015] QSC 61, took the view the Binding Nomination he signed had faulty wording and therefore wasn’t actually binding on the SMSF trustee's decisions at all. The original wording simply stated the SMSF funds should go “to trustee of deceased estate”.

The unintended result

As this phrase was not recognized by the legislation, it therefore, had no effect on the decision of the SMSF Trustee.

  • And who was now the SMSF Trustee? His second wife.
This meant his second wife, as trustee of the SMSF, had the discretion to pay all the Super benefits directly to herself, and she did.

The're 3 common problems with Binding Nominations

  1. Misunderstanding of the three-year expiry rule: 6.17A.
  2. Poorly drafted SMSF deeds requiring strange wording.
  3. Problems with mutual Power of Attorneys, Cascading Power of Attorneys and Testamentary Trusts.
We have a solution to these types of problems. We can provide an Intergenerational Corporate Trustee Structure that could have allowed Munro's second wife, to share control of the Super Fund with their stepmother.

Three things control where your SMSF Super goes when you pass away

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

What you can do about it

  • Do nothing, in which case the super trustee decides where you super goes when you die
  • Make a non-binding nomination to help the trustee decide, but the Trustee of your SMSF may just ignore it
  • Make a 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
  • Make a non-lapsing binding death benefit nomination – it never expires and it binds the Trustee
Contact us today to review your SMSF trust Deed and make a time to meet and decide who you want to be your beneficiary.
Drew Browne

Drew specialises in helping people protect and provide for what matters most in their lives. He's an award-winning writer, speaker, financial adviser and business strategy mentor. His company Sapience Financial is committed to using business solutions for good in the community, and in 2015 certified as a B Corp. In 2017 Drew was recognised in the inaugural Australian Businesses of Tomorrow National Awards. Drew writes for successful Small Business Owners and Entrepreneurs, his blogs can be read on Amazon.com and you can connect with him on LinkedIn.

Any information provided is general advice only and we have not considered your personal circumstances. Before making any decision on the basis of this advice you should consider if the advice is appropriate for you based on your particular circumstance.

drew browne pic

Drew Browne

Sapience Founder & Director.
Simplifying Financial Complexity

Be the first to know!
Get our monthly 

If you like it share it

Download our Free eGuide # 31 Good Money Habits

Download our latest Free eGuide

Download our Free eGuide # 7 Financial Decisions for Same-sex Newlyweds

Download our latest Free eGuide

Download our Free eGuide # 31 Families Lose a Parent Every Day

Download our Free eGuide # 31 Families Lose a Parent Every Day

Find us in The Better Business Book on Kindle

The Better Business Book Vol 3

Learn about Our Process

Every good decision follows a deliberate process and framework. This is how we approach our thinking.

Proress and strategy help make great fianncial decisions

11 Key risks every Australian should know

Know Your Risk

Know Your Risks

So what are the chances of...
Click to

Want an easy way to upgrade your financial confidence, one month at a time?

Get our Not-a-Newsletter

Get our Not-A-Newsletter
Make your financial life a little easier
Get our Not-a-Newsletter

Our Connections

We're connected to every Life Insurance company in Australia

That means we really can give you the best available option

Why this should matter to you

  • AMP
  • AIA
  • BT
  • TAL
  • CommInsure
  • MLC
  • Zurich
  • One Path
  • Macquarie
  • Asteron
  • Clear View
  • NEOS