{"id":5568,"date":"2015-03-28T00:06:32","date_gmt":"2015-03-27T13:06:32","guid":{"rendered":"http:\/\/www.dbalawyers.com.au\/?p=5568"},"modified":"2021-04-14T17:40:34","modified_gmt":"2021-04-14T07:40:34","slug":"another-bdbn-fails-due-to-poor-smsf-documents","status":"publish","type":"post","link":"https:\/\/www.dbalawyers.com.au\/smsf-deeds\/another-bdbn-fails-due-to-poor-smsf-documents\/","title":{"rendered":"Another BDBN fails due to poor SMSF documents"},"content":{"rendered":"

\"AnotherMunro v Munro<\/em> [2015] QSC 61 is the latest case involving a binding death benefit nomination (\u2018BDBN\u2019) that was held not to be binding. This case is a very important decision as it confirms that BDBNs for self managed superannuation funds (\u2018SMSF\u2019) can last indefinitely.<\/p>\n

The facts<\/strong><\/p>\n

Mr Barrie Munro practised as a solicitor during his working life. He died in August 2011 at 66 years of age. He was survived by his second spouse Mrs Patricia Suzanne Munro (\u2018Suzie\u2019) and his two daughters from his previous marriage, Ms Vanessa Munro and Ms Elke Munro-Stewart who were the Applicants in this case.<\/p>\n

The dispute was between Suzie and her daughter Ms Pooley as the Respondents and Mr Munro\u2019s two daughters as Applicants regarding \u2018The Barrie and Suzie Super Fund\u2019 (\u2018Fund\u2019). in February 2012, Suzie\u2019s daughter, Ms Pooley, replaced Mr Munro as a co-trustee.<\/p>\n

Mr Munro signed a document entitled \u2018Binding Death Benefit Nomination\u2019 on 22 September 2009 (\u20182009 BDBN\u2019) to direct the Fund trustees to pay his death benefits on his death \u2018to my estate\u2019. Note that this error had also previously been repeated on 19 July 2004 in a non-binding nomination prepared by Mr Munro\u2019s financial planner and on 25 May 2006 in a prior BDBN prepared by his accountants.<\/p>\n

The BDBN form noted a description of a \u2018nominated beneficiary\u2019 and that when you nominate your executor you should enter legal personal representative. This is described in paragraph 11 of the judgement as:<\/p>\n

[11] On 22 September 2009 Mr Munro signed a printed form entitled \u201cBinding death benefit nomination\u201d that had his name and particulars written on the form, but in the section of the form that allowed for the specification of the nominated beneficiary, the name of the beneficiary had been typed in as \u201cTrustee of Deceased Estate<\/strong>\u201d and the percentage of benefit to be received was designated as \u201c100%\u201d. The relationship of the nominated beneficiary was shown as \u201cTrustee\u201d. The section of the form that contained the details of the nominated beneficiary contained this instruction:<\/p>\n

\u201cEach nominated beneficiary must be your spouse (legal or de facto), child (including adopted or step-children), financial dependant, interdependent or the executor of your estate<\/strong> (as stated in your will). When you nominate your executor you should enter legal personal representative in the relation column.\u201d [Emphasis added.]<\/p>\n<\/div>\n

The Respondents considered the BDBN to be invalid and wanted to exercise their discretion in relation to the payment of Mr Munro\u2019s death benefit. An interlocutory order was made on 11 February 2015 that restrained the Respondents from making any decision to distribute the death benefit other than to the Applicants.<\/p>\n

Did the BDBN have to comply with the SIS Regulations?<\/strong><\/p>\n

This Munro<\/em> judgement mainly deals with the validity of the 2009 BDBN. Mullins J at [35] to [36] stated:<\/p>\n

[35] Although SMSFD 2008\/3 is not binding on the court (or the Commissioner of Taxation) it sets out a logical approach to the construction of s 59 of the SIS Act which I consider correct and adopt for the purpose of determining the applicability of reg 6.17A of the SIS Regulations to the fund.<\/p>\n

[36] As s 59(1) of the SIS Act does not apply to a self managed superannuation fund, the exception to the application of s 59(1) found in s 59(1A) also does not apply to a self managed superannuation fund. Regulation 6.17A sets out the conditions for the purpose of s 59(1A) for the payment of a death benefit after the death of a member, but in view of the exclusion of a self managed superannuation fund from the operation of s 59(1), those conditions do not apply by virtue of either the SIS Act or the SIS Regulations to a self managed superannuation fund.<\/p>\n

Mullins J distinguished the comments of Fryberg J in Donovan v Donovan<\/em> [2009] QSC 26 which indicated in non-binding comments (ie, \u2018obiter dictum\u2019 compared to the binding reasons or \u2018ratio decidendi\u2019 of a judgement) that the SMSF deed in Donovan\u2019s case imported the requirements of reg 6.17A of the SIS Regulations.<\/p>\n

In Donovan<\/em>\u2019s case Fryberg J did not have to decide the issue of whether the criteria in reg 6.17A applied to an SMSF BDBN as the letter did not constitute a binding nomination but the judge did make the following non-binding comment:<\/p>\n

\u2026 the letter did not manifest an intention to make a binding death benefit nomination \u2026<\/p>\n

In my judgment it is quite plain that the intent of the deed is to require the nomination to be in the form described in regulation 6.17A(6).<\/p>\n

In contrast, in Munro<\/em>\u2019s case, it was noted that the definition of the \u2018Statutory Requirements\u2019 in the Donovan<\/em> deed was broad and stated:<\/p>\n

\u2026 means the requirements imposed under any law or by any Statutory Authority which must be satisfied by a superannuation fund in order to qualify for income tax concessions \u2026<\/p>\n

Again, Mullins J, distinguished Munro<\/em>\u2019s case form Donovan<\/em>\u2019s case, and noted the reason for this distinction as:<\/p>\n

[39] In contrast, the definition of \u201cRelevant Requirements\u201d for the purpose of the fund is limited to any requirement the trustee of the fund or the subject trust deed must comply with in order to avoid a contravention of the requirements or in order for the fund to qualify for concessional taxation treatment as a complying super fund. The \u201cRelevant Requirements\u201d are defined as requirements only if they apply to the fund and therefore do not import reg 6.17A which does not apply to the fund.<\/p>\n

This was an important point in coming to the decision that SMSFs are not subject to reg 6.17A. That is, in Donovan<\/em>\u2019s case, the \u2018Statutory Requirements\u2019 incorporated virtually all the requirements imposed under any law on superannuation funds (ie, incorporating by reference the criteria in reg 6.17A). In contrast, in Munro<\/em>\u2019s case, the \u2018Relevant Requirements\u2019 was limited to the requirements that the trustee must comply with in order to avoid any contravention or to qualify for tax concessions. The Munro<\/em> definition therefore did not invoke any BDBN criteria in reg 6.17A.<\/p>\n

Thus, we now have Supreme Court authority (ie, the \u2018ratio decidendi\u2019 of a judgement rather than non-binding \u2018obiter dictum\u2019) confirming that if an appropriately worded SMSF deed is used, a BDBN for an SMSF can be non-lapsing and last indefinitely. This is consistent with the view DBA Lawyers\u2019 have held for many years.<\/p>\n

Moreover, this outcome does away with a great deal of uncertainty that has existed to date as the cautious approach before this (Munro<\/em>) decision, based on the obiter dictum in Donovan<\/em>\u2019s decision was that there was some risk in a non-lapsing BDBN (even assuming it was well worded SMSF deed) being overturned by a court given Fryberg J\u2019s comments. Thus, it was recommended that while the better view was that an indefinite BDBN was the better view, it was still recommended to refresh them every three years as a safeguard.<\/p>\n

While the judgement is of a Queensland Supreme Court, it is likely to be persuasive and followed by Supreme Courts in other jurisdictions. Naturally, there could be other reasons why the Munro<\/em> decision may not be applied in other jurisdictions, eg, if the wording in a particular SMSF deed can also be distinguished.<\/p>\n

Note that SMSF deeds are not a generic product and many SMSF deeds are unsatisfactory in this regard. SMSF deeds from many suppliers rely on a three year BDBN and many of these are easily challenged due to poor wording such as \u2018the BDBN is only binding if it\u2019s to the trustee\u2019s satisfaction\u2019. This type of wording can easily give rise to argument if say the trustee is the second spouse who says he or she does not like it when their spouse dies.<\/p>\n

What did Mr Munro mean by nominating the \u2018trustee of his deceased estate\u2019?<\/strong><\/p>\n

The nomination of the \u2018trustee of his deceased estate\u2019 gave rise to a number of legal hurdles. Broadly, these included:<\/p>\n