Binding Death Benefit Nominations – Notice and Conduct

A binding death benefit nomination (BDBN) is a direction from a member of a superannuation fund to the trustee of the superannuation fund on how that person’s superannuation entitlements are to be paid or transferred on their death. In the absence of a BDBN, the trustee is not compelled to distribute the superannuation proceeds in accordance with the member’s wishes.

In the case of Williams v Williams, the Supreme Court of Queensland has ruled that a BDBN was ineffective on the basis that the requirements, as determine by self-managed superannuation fund (SMSF) deed, were not adequately followed. The crux of the case was that the BDBN was not appropriately provided to the trustees of the SMSF.

Prior to his death, the deceased made a BDBN directing the SMSF trustees to pay his death benefits as follows:

• 50% to his second spouse; and

• 50% to his estate.

The trustees of the SMSF at that time were the deceased and one of his sons from his first marriage.

The SMSF trust deed provided that, in order for a BDBN to be binding on the SMSF trustees, the trustees must either:

• accept the BDBN by written resolution; or

• provide a notice to the member.

In this case, the BDBN in question had a “trustee confirmation” that was only signed by the deceased, and not by the other trustee, being the son of the first marriage.

The Court found that the requirements of the SMSF trust deed were not met and that the BDBN was not binding. In particular, it rejected the second spouse’s argument that one trustee could accept the BDBN on behalf of both trustees. The Court determined that both trustees must receive the BDBN, as were the requirements of this particular SMSF trust deed.

This case is a further reminder that the provisions of the SMSF trust deed must be followed and complied with, which means that the trust deed must be reviewed and understood.

This is the latest of a string of cases that have found that a BDBN was ineffective. However, the case also is an important decision in relation to when the Court will remove an SMSF trustee.

Ultimately, the Court found it was appropriate to remove the deceased’s son as the trustee of the SMSF on the basis that his behaviour was “concerning” and his obvious conflict of interest.

Particularly, the Court noted the son’s “decision to exercise his powers as a trustee against the [deceased’s second wife] and the deceased, because the [second wife] has not given a satisfactory explanation for the conduct of the deceased is, at first sight, not a decision that one might expect to be made by a trustee acting rationally. He does not say how or why he expects that the [second wife] could explain the conduct of her late husband.”

This case is a further reminder that trustees must act in a proper and reasonable manner expected of their position or risk being removed or having a personal costs order against them. It’s also a reminder to trustees and members (and their advisors) to read the trust deed to ensure that any particular action is permitted.  

Alasdair Woodford
Principal Lawyer
T: 03 5225 5217| M: 0436 456 144
E: awoodford@ha.legal

Joseph Flanagan
Associate
T: 03 5226 8504
E: jflanagan@ha.legal

Ben Smith
Graduate Lawyer
T: 03 5225 5262
E: bsmith@ha.legal