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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.
The're 3 common problems with Binding Nominations
- Misunderstanding of the three-year expiry rule: 6.17A.
- Poorly drafted SMSF deeds requiring strange wording.
- Problems with mutual Power of Attorneys, Cascading Power of Attorneys and Testamentary Trusts.
Three things control where your SMSF Super goes when you pass away
- The SMSF Trust Deed
- The SMSF Trustee’s discretion
- 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
