Binding Death Benefit Nominations – Munro V Munro And The Need To Get It Right
Certain superannuation funds, and most self-managed superannuation funds, make use of so-called ‘death benefits’ – funds that are distributed to nominated beneficiaries after the super fund holder has passed away. These death benefits fall into two categories – binding and non-binding benefits.
Many super fund holders that make use of death benefits find it beneficial to make their death benefits ‘binding’, that is, its distribution is ‘bound’ by a trust document or more generally by superannuation law. This is of particular use if the super fund holder wants to ensure that their death benefits are distributed in strict accordance with their wishes.
As with any legal document, it is only as strong and binding as it is valid and clear – the recent case of Munro v Munro details exactly how important ensuring the validity and clarity of your legal documents can be.
Mr Munro signed a binding death benefit nomination towards the end of 2009 specifying the ‘Trustee of Deceased Estate’ as being the full beneficiary of his superannuation death benefit. Mr Munro was a trustee and member of a self-managed superannuation fund (‘SMSF’) with his wife, Mrs Munro.
Mr Munro died in August 2011, and as specified in his Will, the appointed Executors of his Estate were his two daughters (from a previous marriage) and Mrs Munro. After Mr Munro’s death, Mrs Munro’s daughter (who was not related to Mr Munro) was appointed as an additional trustee of the SMSF.
The Trust Deed that governed the SMSF required that the trustees pay any benefits in accordance with a binding nomination provided that the nomination specified that the benefits to were to be paid to one or more of the deceased’s ‘dependants’ or his ‘legal personal representative’. The Trust Deed specified that if these requirements were not satisfied, then the trustees were not ‘bound’ and could pay the benefits in whatever way they thought best.
Bizarrely, Mr Munro, who was a Solicitor, had failed to consider the potential confusion that could arise when naming the beneficiary of his death benefits as a ‘Trustee of Deceased Estate’. A dispute ultimately arose over the precise meaning of this phrase – its definition determined exactly who would receive the death benefit and how it was to be distributed.
Ultimately, the Court held that given the lack of clarity in the binding death benefit nomination, it could not be held to be binding. The result was a significant departure from, what we can assume, were the wishes of Mr Munro.
The Take Away from Munro v Munro
Aside from showing that Solicitors, despite appearances, are in fact human, Munro v Munro perfectly demonstrates how easily a single confusing phrase or term can ultimately unravel meticulous estate planning.
With this in mind, it is absolutely essential that you ensure that your estate planning documents are of the highest possible standard – lest you find yourself Munro’d!