Binding Death Benefit Nomination - Your Legacy Set in Stone
Article in Financial Review Smart Investor Magazine, November 2015 (page 55)
Leigh Adams outlines traps to avoid if you want to ensure how your Self Managed Super Fund is distributed after your death.
A binding death benefit nomination displaces the trustee’s discretion in regard to the allocation of the death benefits of the deceased member. The primary function of a binding death benefit nomination is to give certainty to the deceased’s wishes. Without one, the trustee has absolute discretion to allocate the benefits among the member’s dependants and legal personal representative (that is, the executor of the estate).
A binding death benefit nomination can also be used to direct that an asset be distributed in specie to a beneficiary. This can include business real property where the recipient is to inherit the family business under the deceased’s will.
Many binding death benefit nominations fail, however, for not being specific enough. For example, where a binding death benefit nomination nominates “my spouse” and on his death the member was separated from his legal spouse (but not divorced) and living with a de facto spouse. Sometimes the member adopts a “set and forget” strategy and their circumstances later change or the nominated beneficiary becomes independent or dies.
Common mistakes include where the member states “50 per cent to my son and 50 per cent to my daughter” but the daughter predeceases the member, so the binding death benefit nomination either fails or disposes of only 50 per cent of the super. Or, the binding death benefit nomination may be made out to “John Smith” who is both the executor of the deceased estate and also a dependant. Does the estate benefit or is it a gift to John personally?
Problems often arise because there is no corporate trustee. Recently, a husband and wife were the trustees of their self managed super fund, and the wife’s will stated “my superannuation entitlements are to be given to my two children”. After her death, the husband paid the entire amount to himself. The children’s challenge failed because wills cannot deal with superannuation interests.
Another husband and his second wife were the trustees of their self managed super fund. His binding death benefit nomination left everything to “the trustee of [his] deceased estate”, of which the daughters from his first marriage were the sole beneficiaries. On his death, his second wife appointed her daughter from a former relationship to be her co-trustee. They both argued that the binding death benefit nomination was void because it should have said “legal personal representative” and not “the trustee of the member’s deceased estate”. A poor choice of words cost his daughters their entire inheritance.
Such cases show that the best planning for intergenerational superannuation transfers starts with having a corporate trustee rather than individual trustees. You can appoint your legal personal representative, or an attorney under an enduring power of attorney, to be a director of your corporate trustee on your death. By appointing a trusted person as a director of the corporate trustee of your self managed super fund, the likelihood of challenges to your binding death benefit nomination will be reduced. Thinking “beyond the grave” is a sound way to help ensure your super does not get into the wrong hands.
Leigh Adams is a lawyer and an expert on succession and estate planning issues. Contact Leigh Adams Estate Planning Lawyers Sydney today 02 9964 0022