The Queensland Supreme Court has held that a death benefit nomination form completed by a member of a self-managed superannuation fund (SMSF) was not a binding nomination. Accordingly, the trustees of the SMSF were not required to pay the benefit on death of the member in accordance with the nomination.

Facts – In 2004, Mr and Mrs Munro established an SMSF by deed dated 19 July 2004 and called “The Barrie and Suzie Super Fund”.

  • When Mr Munro applied for membership of the SMSF on 19 July 2004, he inserted in the part of the form for nominating dependants the description “Trustee of my Estate”.
  • Under clause 31.1 (which is subject to clause 31.2) of the deed, the trustee is given the option on the death of a member, who leaves dependants, of paying or applying any benefit to or for the benefit of the relevant nominated dependant either as a lump sum or a pension or a combination.
  • The trustee is also conferred a discretion, if the trustee considers it inappropriate or inequitable to pay the Nominated Dependant, to pay or apply the benefit to the legal personal representative of the deceased or to the benefit of any of the deceased’s dependants in whatever proportions the trustee may determine.
  • Clause 31.2 requires the trustee to pay a benefit payable, on the death of the member, in accordance with a binding nomination where the nomination is signed by the nominator, specifies that a benefit is to be paid to one or more nominated dependants or the legal personal representative of the member, states the nomination is binding on the trustee and [it] complies with the relevant requirements.
  • In May 2006 (on the same day his will was made) and again in September 2009, Mr Munro signed documents [making] binding nominations in which he specified his nominated beneficiary to be “trustee of deceased estate”.
  • Under the will, his wife, Mrs Munro, and his two daughters from his previous marriage, were appointed the executors.
  • Mrs Munro was to receive $350,000 less any moneys owing to Mr Munro by her, and his two daughters were to be the beneficiaries of testamentary trusts created for their benefit in respect of the balance of the estate.
  • On Mr Munro’s death in August 2011 at age 66 years, he was survived by his wife and his two daughters.
  • In February 2012, Mr Munro was replaced as trustee of the SMSF by a daughter of Mrs Munro, Ms Pooley, who was a respondent in this matter with Mrs Munro.
  • As the assets of the estate under the will were minimal, the present dispute was between Mrs Munro and Mr Munro’s two daughters over what should happen to Mr Munro’s benefits under the SMSF and, particularly, the validity of the purported binding death benefit nomination of September 2009.

Decision – The court found that s 59(1A) of the Superannuation Industry Supervision Act 1993 (SIS Act), which allows for the trust deed to make provision for a binding death benefit nomination, does not apply to the fund as it is an SMSF. That meant that reg 6.17A of the SIS Regulations (procedural requirements for death benefit nomination) also does not apply (as per SMSFD 2008/3).

The court then found that the nomination by Mr Munro in September 2009 must mean what it said which was that it was the Trustee of Deceased Estate that was nominated. The nomination did not comply with either clause 31.2 of the trust deed or reg 6.22 of the SIS Regulations (limitation on cashing of benefits in regulated funds in favour of persons other than members or their legal personal representatives) as the nomination was of neither Mr Munro’s executors under his will or one or more of his nominated dependants.

Court ref: [2015] QSC 61, Mullins J, 25 March 2015.

[IT 26/3/15]

FJM Note:

This is another classic case of a second wife and her daughters fighting with the deceased’s daughters from his first marriage. The applicants seeking to enforce a purported binding death benefit nomination in the favour of the deceased estate are the deceased’s natural daughter and the respondents are the second wife and one of her daughters as the trustees of the SMSF (the step-daughter being appointed in the place of the deceased).

The deceased had only a nominal estate, unless his SMSF balance was paid into his deceased estate. The deceased’s second wife and his two natural daughters were made the executors of his estate and trustees of that estate after it was administered, under the terms of his Will. His named executors had not even applied for probate, much less administered the estate (no doubt as it was only nominal).

The question, of who the trustees of his estate would be, was complicated by one further provision in the Will. It provided for the residue of his estate (after payment of a $350k ‘gift’ to his second wife) to be divided in two and held on two testamentary trusts to be held respectively by each of his natural daughters as ‘initial trustee’ and ‘primary beneficiary’ (so there may not have been anything for the executors to have held as ‘trustees’).

The $350k ‘gift’ to the second wife could, of course, have been effected by a direct distribution from the SMSF (as she was his wife and therefore a ‘dependant’ for the purposes of the ‘cashing restrictions’ in s55A of the SISA, r6.22 of the SISR and the relevant definition of ‘dependant’ in s10 of the SISA). And, indeed, the deceased’s Will recognised this possible interaction between his SMSF balance and his estate (which we can assume the parties knew would be only nominal – particularly as he was a solicitor and this would be common for asset protection reasons). The Will said that the benefits, provided for, were to be paid from the aggregate of his estate and his SMSF balance (“so for example, if [his second wife] receive[d] or [wa]s allocated the amount of [her $350k] Gift directly from the proceeds of any superannuation funds on my death, the gift in clause 9, hereof shall lapse”).

But the testamentary trusts could not be effected by payments direct from the SMSF to the daughters (even though they two would be relevantly ‘dependants’ for the ‘cashing restrictions’ I mentioned above). This is because a superannuation fund cannot (or at least typically cannot) pay benefits to beneficiaries subject to trusts that it imposed on the benefit payment. Thus, the only way the testamentary trust benefits could be effected was for the $350k gift to the deceased’s second wife to be paid from the SMSF and the balance be paid to the deceased’s estate or the whole of the SMSF balance be paid to his estate (so that the $350k gift under the Will would take effect).

It appeared that it was this second course that the deceased had in mind as he executed a binding death benefit nomination for 100% of his SMSF balance in favour of the ‘Trustee of Deceased Estate’. But it was the meaning of this term that was at the heart of the dispute and Her Honour found against interpreting this term meaning his deceased estate (in essence because it was preceded by the term ‘trustee’).

How could Her Honour have reached such a conclusion? With respect to Mr Justice Mullins, I will try to explain how he reached such a ‘wrong headed’ conclusion.

  • First, Her Honour draws a technical distinction between ‘executors’ (who have to administer the estate) and ‘trustees’ (who might hold the administered estate on the trusts provided for in the will). This is a valid distinction in succession law, but this ought not distract from an inquiry about the meaning of a private document, which is a question of what the party executing it meant. Her Honour does not acknowledge this (see para [43] and following).
  • Instead, Her Honour concludes that the use of the word ‘trustee’ means a ‘trustee’ that doesn’t exist under this arcane part of succession law (because the estate hadn’t been administered and there was therefore no ‘trustee’). It is highly unlikely that the deceased even knew about this distinction, much less intended that his wishes should be defeated by adding the would ‘trustee’ in front of the term he did intend, which is much more likely to be his ‘Deceased Estate’. So, it was more than open to Her Honour to interpret the term used in the death benefit nomination as meaning his ‘deceased estate’. This is, not only because these are the key words in the term to be construed, but also because this interpretation would give effect to the testamentary trusts for the benefit of his natural daughters (which could only be effected by the required portion of the SMSF benefit going to his ‘deceased estate’).
  • Further, recourse could be had to previous death benefit nominations to construe this one (which is not to deny that nominations at different times could well be different). In this case however, the nomination made 3 years earlier was to “to my estate”. This contains the same substantive destination (his ‘[deceased] estate’) but is not infected by the potentially confounding word ‘trustee’ (of that estate). This too should be a clear pointer to the intention of the deceased when he executed the the death benefit nomination form.
  • Her Honour also said that a nomination in favour of a ‘trustee [of a] deceased estate’ would breach the ‘cashing restrictions’ in the SIS law, because it is not the same thing permitted by that law, namely: a ‘legal personal representative’ (which the SIS Act (s10) defines as the ‘executor’ of a deceased estate). But again this depends of a technical distinction that may not even be warranted for the interpretation of the SIS law but, is certainly open when construing a private instrument (as noted above).
  • Then, Her Honour held that the Applicant could not use the terms of the Will to help construe and entirely different document, namely the death benefit nomination. This might initially sound sensible until one appreciates the background circumstances and the intertwined operation of the SMSF benefit and the deceased estate. For the reasons I’ve set out above, the terms of the Will (and particularly the benefit for his natural daughters that would otherwise be defeated) do throw light on the interpretation of the intended beneficiary of the death benefit nomination. It must mean his ‘deceased estate’. And yet all Her Honour could say was that was not ‘appropriate’ to refer to the Will when construing a death benefit nomination (see para [44]). In my opinion this is too ‘thinly’ argued and quite inadequate.
  • And then in the same paragraph ([44]), Her Honour says: “In any case, the terms of the will are equivocal, as to whether Mr Munro anticipated his executors would be paid the death benefit from the fund or take the receipt of the death benefit into account when making the distributions under the will.” This can fairly be said of the $350k gift to the deceased’s second wife – the SMSF benefit could all be distributed to the estate and then gifted from there, or it could be distributed from the SMSF and then the gift from the estate would fall away. But the same cannot be said of the testamentary trusts for the benefit of the deceased’s natural daughters. Despite those natural daughters being eligible ‘dependants’, the SMSF could only pay them a benefit and not impose the terms of the testamentary trust on the death benefit payment. Neither could the trustees of the SMSF be constrained to give the deceased’s second wife no more than the $350k gift set out in the Will. In these respects it is entirely wrong to say that the deceased was ‘equivocal’ in his Will as to whether the benefits should come from the SMSF or the estate. Indeed, his attempt to bind the SMSF trustees to distribute 100% of his SMSF account to his estate was the only way his Will would make sense or be given effect to.