Superannuation is for your retirement. However, a dead person no longer needs retirement money. Therefore, the Superannuation must leave the low taxation environment. It is paid out at death. 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 32% tax. A superannuation testamentary trust in your Will 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, and are not left to the 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.
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. not do anything, in which case, the Trustee decides where your super goes at death
2. non-binding nomination to help the trustee decide, but the Trustee of your SMSF 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 non-lapsing binding death benefit nomination – it never expires and it binds the Trustee
The Deed of 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.
In Hill v Zuda the SMSF binding death benefit nomination (BDBN) fails. This is because the SMSF Deed stupidly 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 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.
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.
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.
Adj Professor, Dr Brett Davies, CTA, AIAMA, BJuris, LLB, Dip Ed, BArts(Hons), LLM, MBA, SJD
Legal Consolidated Barristers and Solicitors
National Australian law firm
National: 1800 141 612
Mobile: 0477 796 959
Email: [email protected]