Superannuation is for your retirement. However, a dead person no longer needs retirement money. Therefore, at death, the Superannuation leaves the low taxation and asset protection environment.
Superannuation must be paid out at death. The only exception is a Reversionary Pension to a spouse or young child.
But who gets your super at death? An SMSF Binding Death Benefit Nomination directs where your super goes at death. It either goes to a person (dependent) or into your Will.
However, your Superannuation is not an estate asset. It does not automatically go into your Will. What happens if you have no binding nomination? The SMSF trustee pays out your Super as it sees fit. Fight back. A binding death benefit nomination overrides the trustee’s discretion.
If your super goes to an adult child then the tax rate is up to 17% or even 32% tax. A superannuation testamentary trust in your Will potentially reduces that non-dependency death tax to zero.
SMSF Binding death benefit nominations provide certainty. They ensure that upon your death, your super is paid according to your wishes. It removes the SMSF trustee’s discretion.
If there is no binding death benefit nomination, then the only condition is that the trustee’s decision to pay the benefits is ‘fair and reasonable’. See Stock (as Executor of the Will of Mandie, Deceased) v N.M. Superannuation [ 2015] FCA 612.
Without a binding nomination, the Superannuation trustee has unfettered discretion. This is to pay the benefits as it deems appropriate. The trustee:
Who is the trustee of your Self-Managed Super Fund? Is your trustee your second wife? Is it only the children of your first marriage? It is just one of your children?
The SMSF Trustee can and often does, greedily transfer the superannuation just to themselves. This is unless you make an SMSF non-lapsing binding nomination.
Can a Will control your superannuation death benefits? The courts continually say no.
Consider the old Superannuation Complaints Tribunal’s 2012 decision D11-12/066. The dead wife ‘forgot’ to sign a binding death benefit nomination. In fact, she signed no nomination at all.
Instead, she signs a Will. Her Will appoints her defacto husband, son and daughter as her Executors. Executors are also called ‘legal personal representatives’ (LPR).
(It is rather confusing. This is because nomination forms have to use only one expression. This is ‘legal personal representative’. The binding nominations forms cannot use, perhaps, more useful expressions such as ‘my Will’, ‘my estate’ or ‘executors’. Instead you must only use the expression ‘legal personal representative’ in a superannuation binding nomination.)
The Specific Gift in the Will gives her Superannuation to only her husband.
Correctly the trustee of the superannuation fund:
Without a binding nomination the super goes into the Will. The super is paid out under the terms of the Will. It no longer goes all the husband.
The husband challenges the decision. He argues that it is unfair and unreasonable. This is given that his wife left a Specific Gift of the superannuation just to him.
The husband desperately argues that this Specific Gift is the death benefit direction. (Why do people do this? They always lose.)
As is always the case, the Tribunal upholds the decision of the superannuation trustee. This is for the trustee to distribute the superannuation benefit to the deceased’s estate. This is held as fair, reasonable under the law. The trustee’s decision is acceptable under the superannuation deed and the superannuation law. The Tribunal goes further and states it is the correct decision.
It is silly and wrong to believe that the superannuation is controlled by a Will.
Sure, a Superannuation Testamentary Trust in a Will can get rid of the 32% death tax on superannuation. But it cannot force the superannuation trustee to pay the super into the Will, in the first place.
Here are lost cases of people that do not believe me:
Many SMSF Deeds state that a binding nomination are only completed on the exact Nomination Form contained in the Deed. However, most Nomination Forms don’t comply with the new laws. Therefore, it is impossible for that SMSF to have binding nominations.
The bundle of documents you are about to build corrects faulty deeds and nomination forms. The documents also update the SMSF Deed as well. For example, it allows 6 member funds. You also get a fully compliant SMSF Nomination Form as part of the bundle.
Legal Consolidated also updates your SMSF Deed. This ensures that your SMSF can set up binding nominations.
Build the SMSF Binding Death Benefit Nomination. The pack includes:
1. Deed of Variation – this updates your SMSF Deed to allow for binding death benefit nominations
2. Death Benefit Agreement (binding on Trustee and does not expire)
3. Updated Product Disclosure Statement
5. Our covering letter of advice.
You can only nominate a:
1. superannuation dependent; or
2. legal personal representative (which is the trustee in your Will)
A ‘dependent’ includes:
1. your spouse and de facto (includes same-sex)
2. your children of any age (includes adopted)
3. any person financially dependent on you
4. any person in an interdependency relationship with you
5. your ‘legal personal representative‘ – the executor in your Will (LPR).
Your adult children pay 17% or 32% tax on your Superannuation. The death tax is on the concessional amount. Put a ‘Superannuation Testamentary Trust’ in your Will. The Super Testamentary Trust seeks to reduce death tax down to zero. You then nominate, in your binding nomination, your ‘legal personal representative’. You do this by ticking the ‘legal personal representative box’. Your Super then goes into your Will. The Super Testamentary Trust seeks to reduce the super death tax to zero.
If you have a Superannuation Testamentary Trust in your Will then you should leave the superannuation so it goes into your Will. But in the binding nomination, you don’t use the expression ‘my estate’ or ‘my Will’. Instead, you only use the expression ‘legal personal representative’. Our binding nominations comply with Munro v Munro  QSC 61.
See what happens if you use a website that is not a law firm to build your binding nominations: https://www.legalconsolidated.com.au/many-binding-death-benefit-nominations-built-on-non-law-firms-websites-dont-work/
Three things control where your Superannuation goes at death:
1. Trust Deed
2. Trustee’s discretion
3. Binding Nominations
1. do nothing: the Trustee (or the SMSF deed) decides where your super goes at death
2. non-binding nomination may help the trustee decide, but the Trustee may just ignore it
3. binding death benefit nomination that expires every 3 years – provided you die within the 3 years your Trustee must follow your binding nomination – it is binding on the Trustee
4 Legal Consolidated non-lapsing binding death benefit nomination – never expires and it binds the Trustee
The Legal Consolidated Deed of SMSF Variation you are building allows you to opt for any of these.
Yes, you must update both the SMSF Deed and provide for the Binding Nomination form. We do both. This is why:
Binding nominations are controlled by:
But they do not apply to Self-Managed Superannuation Funds. See Hill v Zuda Pty Ltd  WASCA 59. Confirmed by the High Court in Hill v Zuda Pty Ltd  HCA 21.
In Hill v Zuda the SMSF binding death benefit nomination (BDBN) fails. This is because the SMSF Deed bizarrely requires that the nomination complies with Regulations 6.17A. This is an extra burden that the SMSF did not, otherwise, have to overcome. Anyway, the nomination did not comply with reg 6.17A. This was because it had these extra hurdles:
I started practicing in 1988. At that time we did not have the answer to that question. We also did not know whether we needed one or two witnesses for a non-lapsing binding nomination.
It was 20 years later that the ATO gave the answer. SMSF Determination 2008/3 confirms that section 59 SIS Act and Regulation 6.17A SISR do not apply to SMSFs. In Determination 2008/3 the ATO states:
“… the governing rules of an SMSF may permit members to make death benefit nominations that are binding on the trustee, whether or not in circumstances that accord with the rules in regulation 6.17A of the SISR.”
The ATO confirms that it is possible to draft an SMSF’s trust deed to allow the binding death benefit nomination to last for more than three years.
From that point, your SMSF Deed can set its own peculiar rules about death benefit nominations. These are binding on the SMSF. They do not have to follow the rules set in in Regulation 6.17A.
However, ATO statements are not law. We do not elect ATO officials. The Court follows legislation. It does not blindly follow what the ATO thinks the laws are saying. More important these cases say the SMSF Deeds can allow for binding nominations that can exist longer than 3 years:
Regulation 6.17A(7) states a BDBN lapses:
A SMSF BDBN nows has the additional requirements. It must comply with the SMSF Trust Deed. Let us say you follow all the rules. But the SMSF Deed has a ‘special’ additional rule. If you do not follow that ‘special’ additional rule then the nomination fails.
For example, I am looking at a brand new SMSF Deed built on an SMSF platform. It requires that the BDBN be on an attached form. But the attached form only has one witness and a few other mistakes. So there is no way you can do a BDBN for this SMSF Deed. The Deed needs to be updated.
That is why when you build our SMSF binding nomination pack, we also update your SMSF Deed as well.
Zuda Pty Ltd is the trustee of the Holly Superannuation Fund, an SMSF. A member dies. His daughter challenges his BDBN. This is on the basis that it did not comply with regulation 6.17A.
The West Australian courts followed earlier decisions in other states that found that BDBNs in SMSFs do not have to comply with regulation 6.17A.
The High Court confirms that regulation 6.17A does not apply to BDBNs in SMSFs.
A BDBN looks like a simple document.
Binding nomination have been available since 1 July 1999.
But there are still problems and complexity.
SISA and SISR can be interpreted so that SMSFs are not allowed to have non-lapsing binding death benefit nominations. This is not the case after Hill v Zuda.
The case confirm that the restrictions in SISA93/SISR94 do not apply to legally prepared BDBNs in SMSF Deeds.
Therefore, a BDBN can be drafted to be non-lapsing in an Australian Self-Managed Superannuation Fund.
In Wooster v Morris the Husband and his second Wife are the trustees of their Self-Managed Super Fund. (Sure, most people have a company as trustee of their SMSF. But it is legal for humans to be the trustees of their SMSF, instead of the corporate trustee.)
The Husband has two beautiful daughters from a previous relationship.
The Husband makes a BDBN to his daughters. His daughters are also the executors in his Will.
The Husband dies.
After her husband’s death, the second Wife appoints her own son as co-trustee of the SMSF. Together they swap out themselves as the human trustees to a corporate trustee. Of course, the second Wife is the sole director and shareholder of the corporate trustee.
His second Wife ignores the BDBN. This is on a technical point. The BDBN is never given by the Husband (as a member) to his second Wife (as one of the trustees of the SMSF). The second Wife never gets the BDBN in her capacity as trustee of the SMSF. Her Husband’s BDBN is not binding because it is never formally ‘delivered’ to her.
As the Binding Death Benefit Nomination appears to not be valid the second Wife exercises her discretion. This is as the controller of the SMSF’s corporate trustee. She gives herself all of her Husband’s superannuation in the SMSF.
But the two daughters are executor’s of their father’s estate. Can not the Will control the superannuation in the SMSF? The answer is, of course, no. The super has to somehow get into the Will before the executors can take control of the super. The executors are all powerful over assets in the estate. The executors are all powerful over assets in the Will. But superannuation does not automatically become part of dead person’s estate.
After a huge and expensive court battle the second Wife loses. The ‘technical’ fault is not enough to invalidate the Husbands’ BDBN to his two daughters. (As superannuation lawyers, we are fascinated with what other ‘mistakes’ you can make in a SMSF and still get a valid outcome.)
The second Wife is required to hand over the super to the Husband’s two daughters. To add insult to injury cover everyone’s costs of the litigation.
There are strict rules for witnessing a binding death benefit nominations (BDBNs). In fact, there are strict rules to witness any document. As lawyers, accountants and financial planners we follow the rules.
ASIC actually banned a financial adviser for 8 years for not signing the BDBN properly.
Two witnessed must witness a BDBN. Both have to be present at the same time. Both witnesses must be in the same room. National Australia Bank at one time allowed one person to witness a BDBNs with only one witness. The second witness signs later. This is the case, even though the second witness did not see the signing.
At best you would have to be stupid to believe that is acceptable.
Consider this ASIC Media statement dated 6 May 2021:
ASIC has banned Sydney-based former financial adviser, Lisa Lee, from providing financial services for eight years.
Ms Lee was a representative of Australia and New Zealand Banking Group Limited (ANZ) between 5 June 2010 and 15 June 2017 and Infocus Securities Australia Pty Ltd between 19 September 2017 and 19 November 2018. She is no longer providing financial advice.
ASIC found that while a representative of ANZ, Ms Lee falsely witnessed binding nomination of beneficiary forms for 17 clients, backdated documents, and falsified a client’s signature on documents.
Financial advisers must act with honesty and integrity in their dealings with clients. ASIC may ban a financial adviser if it has reason to believe that they are not a fit and proper person to provide financial services or that they are likely to contravene a financial services law.
Ms Lee’s banning has been recorded on ASIC’s publicly available Financial Advisers Register and the Banned and Disqualified Persons Register.
Ms Lee has appealed to the Administrative Appeals Tribunal for a review of ASIC’s decision.
Editor’s note 1:
Paragraph 4 of this media release was amended on 12 May 2021 to reflect the current wording of sections 920A and 920B in the Corporations Act 2001.
Australia and New Zealand Banking Group Limited falsely witnessed BDBNs, backdated documents and falsified a client’s signature on documents.
In announcing the ban, ASIC mentions the failure to act with honesty and integrity and be of good fame and character and the need to be likely to comply with the financial services law.
For a Will, there are two witnesses. They are both present and observe the willmaker signing the Will (or POA for that matter).
Consider Lewis v Lewis  NSWSC 1306. The son prepared a Will on behalf of his Mum.
Obviously, he could not witness his Mum’s Will. And if he did he is automatically excluded from benefiting from her Will. See R F Hill & Associates v Van Erp (1997) 188 CLR 159. The boy arranges two neighbours to witness her Will.
The son goes out. He comes home. Mum had signed the Will before the witnesses had arrived. And she had gone to bed.
The witnesses arrive. The son lets them know that Mum has signed. But gone to bed. Declaring: “This is not the right way to witness the will but I will have to deal with it at a later stage. Do you mind signing anyway?”.
This is not the correct procedure for either a Will or the signing of a binding nomination.