Superannuation binding death benefit nomination versus Will

In July 2002 Francesca and Augusto Conti established a self managed superannuation fund (SMSF) they were its only trustees and members.

Following Francesca’s death in August 2010, Augusto retired as a trustee of the SMSF and appointed as trustee a corporation of which he was a director.

Francesca had made a will dated 13 January 2005 leaving her superannuation entitlements to her children expressly stating that she did not want any superannuation entitlement paid to Augusto. However she did not complete a binding written direction to the trustee of the SMSF that reflected these wishes.

The SMSF rules stated that unless there is a binding written direction from a deceased member, the trustees had the absolute discretion pay the death benefit to a spouse, or child of the member or any other person who in the opinion of the trustees was dependent on the member at the time of their death. As Francesca left no binding written direction the corporate trustee decided to pay Francesca’s death benefit of $648,586 to Augusto.

Francesca’s children (as executors of her estate) took action against Augusto and the corporate trustee arguing that they had not acted in good faith. The Court decided that as Augusto had taken specialist advice as to his rights and obligations the executors argument that the SMSF trustee had not acted in a bona fide manner was rejected. The Court also took the view that superannuation law allows the trustee to ignore the direction in Francesca’s will.

The Court noted that this case illustrates how problems can arise in the administration of a fund and that in this case lead to substantial financial and emotional cost to Francessca’s children.

trustees must act responsibly, reasonably and in good faith

As discussed before the payment of death benefits from a superannuation fund are made in accordance with the rules of the fund and not as set out in the deceased’s will.

The trustees of the fund must apply the rules of the fund in good faith, responsibly and reasonably.

Death benefits from a superannuation fund are paid at the discretion of the trustee of the fund. In most circumstances death benefits may only be paid to a member’s executor or one or more of the member’s dependants.

Nomination and the Ex-spouse 

For example you make a valid binding death benefit nomination according to the governing rules of the fund requiring the  trustee to pay the death benefit to your spouse. The funds rules stipulate this nomination remains valid for five years from the date received by the trustee.

If you were to divorce and remarry within 5 years without revoking or amending the nomination the super fund trustee is not required to follow the death benefit nomination.

Even though the death benefit nomination was made in accordance with the funds rules your ex spouse is no longer your dependant for the purposes of the Superannuation laws. The death benefit will be directed at the discretion of the super fund trustee in favour of either the executor of your deceased estate or any of your dependants.

Nomination and the non dependant relative

A further example of how this applies is if you provided the trustee with a written death benefit nomination made according to the fund rules directing the trustee to pay your death benefits to your niece.

You die survived by your spouse. At the time of your death your niece is financially independent and therefore not considered a dependant under superannuation law. In this case the nomination is not valid and is not binding on the trustee who must act in accordance with the governing rules of the fund and the requirements of superannuation law.

Superannuation Death Benefits for Same Sex Couples

Superannuation law recognises a ‘dependant’ of a deceased member of a superannuation fund as:

(1) a spouse of the deceased;

(2) a child of the deceased;

(3) a dependant of the deceased; and

(4) if an ‘interdependency relationship’ is established.

Enabling the beneficiary to directly inherit the contributor’s funds if they die, and avoiding higher taxes that would apply if the funds passed under a will or through the intestacy process.

Interdependent relationship

From June 2004, a surviving same-sex partner would be entitled to his or her partner’s super benefits if they could satisfy that they had an ‘interdependency relationship’. Which is defined as a cohabiting ‘close personal relationship’ where one or both parties provide the other with ‘financial support’ and ‘domestic support and personal care’

Definition of Spouse amended to include same sex relationships

Since 2008, same-sex couples have had their relationships recognised by their superannuation fund as the word ‘spouse’ includes same-sex partners who register their relationships, or who live on a genuine domestic basis in a relationship;

  • the definition of ‘de facto’ includes same-sex relationships, and;
  • the definition of ‘child’ includes adopted children, stepchildren and ex-nuptial children.

This ensures a member of a same-sex couple no longer has to satisfy the interdependency criteria to receive the deceased member’s superannuation benefits either continuing to take the deceased members pension, or as a tax free lump sum.

Superannuation – Binding Death Benefit Nomination

Mr & Mrs Katz were long term members and also acted as individual trustees of their self managed superannuation fund.

Mrs Katz died leaving Mr Katz as the sole member and trustee of the fund. Superannuation laws required the fund to have two individual trustees. Mr Katz appointed his daughter, Linda Grossman, as an additional trustee of the fund and completed a non-binding death benefit nomination stating he wanted his death benefit to be paid equally between his daughter Linda and his son Daniel Katz.

One month prior to Mr Katz death, Linda applied to become a member of the fund and used her position as trustee to accept herself as a member of the fund. Following the death Linda as surviving trustee appointed her husband as a trustee of the fund and subsequently paid the entire death benefit to herself.

Daniel took the decision to court, lost the case, and received no benefit from the fund. The trustees would have been bound to honour Mr Katz’ intentions if he had completed a binding death benefit nomination.

Benefits of a Binding Death Benefit Nomination

In the same way a Will allows you to direct who gets your estate, the benefit of a valid binding nomination is that you direct who benefits from your superannuation. For example you could direct it to your estate so that it is dealt with under the provisions of your Will, or to a named beneficiary.

Like your Will a binding death benefit nomination should be kept up to date so that it reflects your current circumstances. However unlike a Will a binding nomination provided to a super fund generally lapses after 3 years.

Superannuation – Can I make a Binding Nomination to My Estate

Superannuation Law & Succession Law

When you die, it is not only Succession Law that governs who gets your assets. Most people in Australia have  Superannuation, which is governed by superannuation laws, which give your super fund  the power to decide who receives your superannuation when you die. You might believe that nominating a beneficiary through your superfund or in your Will over rides the super funds power, but this may not be the case.

The power of a Super fund to nominate who gets your superannuation has benefits including the ability to take into account changed family relationships if you haven’t updated your nomination. However if you haven’t updated your nomination the super fund may take into account a prior nomination and as a result a former beneficiary (such as an ex spouse), may receive your superannuation.

Binding Nominations

In order to better manage your estate you can make a Binding Death Benefit Nomination (Binding Nomination). A binding nomination enables you to nominate any of your dependents, which might be your current partner, any, or all of your children regardless of age, or your estate (enabling the proceeds to be distributed as part of your Will).

You can make a binding nomination at any time however if you don’t the super fund will give your superannuation to your beneficiaries in whatever way it believes is fair and reasonable. In exercising this power the super fund may look at any nomination that you have previously made to help them make this decision.

It must be remembered that binding nominations are only valid for three years, and may be revoked or changed at any time by sending the fund a new binding nomination, witnessed by two non beneficiaries. Importantly if your nomination expires, and is not renewed, your benefits are paid to your estate.

As with any decision regarding your estate it is important to take into account any tax and legal implications of the decision to make a binding nomination.

How do I make a binding nomination?

A superannuation fund is governed by rules set out in its Trust deed. In order to make a binding nomination you must contact your super fund to check that it is permitted under the Trust deed.  If it is allowed the fund will provide a binding nomination form that requires your signature to be witnessed by two people who will not receive your Super in the event of your death.

What happens if my nomination is invalid?

If the binding nomination does not meet the rules of the Trust Deed or under Superannuation law (for instance it is not signed and witnessed properly), it is invalid and the Super fund can decide who gets your superannuation.

Holmes à Court and the unsigned Will

Robert Holmes à Court, a lawyer, corporate raider, and the first Australian billionaire died following a heart attack in 1990 aged 53. Following his death extensive searches were undertaken but no executed Will was found. His estate was estimated to be worth over $800 million

Although Holmes à Court was described as a corporate raider he planned acquisitions meticulously. His strategy after acquiring significant voting rights in a corporation whose assets appeared to be undervalued would be to break up the conglomerate into its various pieces, which he knew would be worth more than the company as a whole.

It is interesting that as a lawyer who planned his business affairs so carefully he failed to similarly manage the distribution of his estate leaving it to be dispensed under the legislative formula of intestacy.

Under Western Australian law, an intestate estate worth more than $50,000 is divided so that the spouse will get the first $50,000 plus one third of the estate, and the remaining 2/3 of the estate will be divided equally among the children.

His widow Janet came to an arrangement with his children that they sign over their rights to the estate leading to protracted difficulties. It is ironic that if the reports that Holmes à Court had carried an unsigned will in his briefcase for 18 months before his death are true that the execution of this document would have avoided these problems.

Estate Management – It’s not just about a Will

Lawrence Inlow, 46, was killed instantly when struck in the head by the rotor blade of a helicopter. As is the central issue of many of my posts he died without a Will.

It is not uncommon for a person to die intestate but Inlow was the in house lawyer for a major United States insurance company and he was worth over $175 million.

You would think that a lawyer would have executed a Will!!!

The estate had to be distributed under the Indiana laws of intestacy – the Court appointed an administrator (the deceased would have appointed one under a Will); Due to the size of the estate and the fact that Inlow had been married twice and had children from both marriages there was protracted litigation.

Although we don’t like to think about it the chance of a person dying is 100%. Hopefully those of you reading this will live long, happy and healthy lives, but accidents occur and we owe it to our families and friends to manage our affairs as best as possible. Having a Will allows you to direct your estate in the way that you wish, instead of relying on the local intestacy laws.

However it is not just a Will that you need to think about when managing your affairs but things such as life insurance, disability, and income protection insurances – particularly if you are a small business owner.

Car registration requires compulsory third party insurance, a mandatory condition for membership of many professional bodies is public indemnity insurance. Sadly many of us don’t extend that same type of thinking as to what would happen to our businesses if we were to die or suffer from illness. It is time to start thinking about managing our affairs otherwise others will be left to do this for us.

Hoobin v Hoobin – Marriage revokes Will

The deceased married his second wife Margaret on 7 June 2000 three days before he died. They had known each other since 1994 and had lived in a domestic relationship since 1996.

She applied for the grant of probate of a will made by the deceased on 27 January 1999. The Will left the whole of his estate to Margaret who he described as “his de facto spouse”. He made no provision in the Will for his adult children.

The Court accepted evidence from a number of sources that the deceased did not want his children to benefit from his Will as he believed that they only wanted him when there was something to be got from him. He had taken steps to have no contact with his children; as a consequence his children had not visited him. As he loved Margaret he wanted her to inherit his entire estate.

As previously posted a person’s will is revoked by that person’s subsequent marriage unless it is made in contemplation of a marriage. The Court had to decide if the deceased’s will of 27 January 1999 was made in contemplation of a marriage to Margaret, on 7 June 2000.

If the will was not made in contemplation of such a marriage, the deceased died intestate. On Intestacy the deceased’s estate would be split according to a legislated formula between Margaret and the deceased’s children.

The Court did not accept Margret’s evidence that she accepted the deceased’s proposal of marriage in 1994. She gave several contradictory statements as to why they were not married until 2000. Evidence from the deceased’s solicitor indicated that Margaret had not agreed to marry the deceased at the time he made his will in January 1999. In his instructions the solicitor noted that the deceased told him that he was  “Not to marry so no will in contemplation of marriage. Will to her”.

The Court held that the deceased’s will was revoked by his marriage on 7 June 2000. Therefore the deceased died intestate and his estate was distributed according to the legislated formula with the Court finding that three of the children of the deceased may receive inadequate provision for their proper maintenance, education and advancement in life under this formula.

Revocation by Marriage

If you have a Will it is revoked if you marry someone after making it unless the Will was made in contemplation of that marriage.

Legislation in most jurisdictions provides that Wills made in contemplation of marriage generally or in contemplation of a particular marriage are not revoked by the marriage of the will maker.

Courts have held that the definition of contemplation of marriage depends upon the facts of the case. Importantly Courts have held that the will maker must hold the intention that the Will is to remain in effect after the marriage. Generally speaking a Will is made in contemplation of marriage if the will maker intends to propose or has marriage in mind when the Will is executed.

 In Western Australia a Will is revoked by Divorce except where the Courts find that there is evidence that the will maker didn’t intend this to occur. This provision seems harsh, as many of the provisions of a Will are not related to the spouse.

In other jurisdictions partial revocation occurs upon Divorce (and in Tasmania and the ACT these provisions include the termination of relationships other than Divorce). Where the former spouse is treated as if they had predeceased the will maker.

Importantly Divorce or annulment will not revoke the former spouse as trustee for the children of the will maker and former spouse.

In cases where a Will names no other beneficiaries apart from the former spouse the will maker is intestate upon divorce.

Voluntary Revocation of a Will

The revocation of a Will is simply the cancellation of a Will so that it no longer operates. A will can be revoked  in a number of different ways but importantly in order to revoke a will voluntarily the testator not only must act, but also have the intention, to revoke the will.

In Writing

In some instances a will can be revoked without creating a new will, for example creating a document signed by the testator in the presence of two witnesses, who witness his signature, is a properly executed intention to revoke a Will

Destroying the Will

A testator can revoke a Will by destroying it either by burning, tearing, or in some other manner, however the act must physically destroy the Will, and not simply be symbolic. The testator must show a clear intention to destroy the will as the act of destroying it is insufficient to prove revocation.

Execution of a new Will

The most common way that a Will is revoked is where a later Will is executed where that later will includes a revocation clause. Occasionally a new Will is executed without a revocation clause, however if the new Will is inconsistent with the former Will revocation to the extent of the inconsistency is implied by the Court

By Writing on or Dealing with the Will

In some jurisdictions a Will may be revoked by writing on, or dealing with the Will either by the testator or by some one else at the direction of the testator in his or her presence. In order for the Will to be revoked in this manner a Court must be satisfied that the intention of this act was to revoke the will.

Lost Wills

Where a Will is lost it is presumed that as it was last seen in the custody of the testator it has been revoked by her. In an earlier post regarding Brett Whiteley and the Kitchen Will this presumption may be rebutted by evidence suggesting the testator could or would not have revoked the will

Mistake or Conditional Revocation

In proving that the testator intended to revoke a Will there could be either a revocation by Mistake for example where the testator destroys a Will thinking that it has already been revoked – which fails because there was no intention to revoke the Will; or a Conditional revocation where the testator revokes a Will on the basis of a condition that does not occur – for example if a Will was to be revoked on the remarriage of the testators daughter – where this does not occur the Will is not revoked.