Page 19 - Advice Matters - FWP May 24

The Mandie Case: the importance of a

binding death benefit nomination

Binding death benefit nominations provide certainty a formal settlement agreement and payout to discretion to make the payment and the decision
for people establishing their superannuation resolve a dispute between them in relation to need only to be made on grounds that were fair and
and estate plans. They help ensure that upon the contributions of each to the family business. reasonable in the circumstances. The SCT noted that:
the member’s death, any super benefits are paid The settlement agreement limited his sons from • superannuation is not an asset of the estate, and
according to the member’s wishes, and are not left receiving any future entitlements from his estate by the trustee is not bound to follow the directions
to the trustee’s discretion. terms that stated that neither of Mr Mandie’s adult of a will, even if superannuation is specifically
sons “have any further rights against [him] or [his mentioned in the will
The recent Federal Court decision wife] or their respective estates…” The settlement
in the Mandie case1 demonstrates that if there is agreement also provided for fixed sums to be paid • although the trustee will look to a deceased
no binding death benefit nomination, then the only under his will to his grandchildren and the residue of member’s will and any other document which
condition is that the trustee’s decision to pay the his estate to be paid to his daughter. purports to identify the wishes of a deceased
benefits is fair and reasonable. The trustee will have member to assist in determining the wishes of the
the unfettered discretion to pay the benefits as it Before Mandie passed away, he was a member of member, the role of the trustee in the distribution
deems appropriate. This means that the trustee: the BRW Rich 200 list and his wealth in May 2011 of a death benefit is not to resolve any perceived
• is only bound by the superannuation fund trust was estimated at $289 million3. or real issues in a deceased member’s estate.
deed • the trustee must decide the distribution of a
• is not bound by any supplementary direction THE DEATH BENEFIT PAYMENT UNDER death benefit unless a binding death benefit
whether it be the deceased’s will or a settlement MANDIE’S SUPERANNUATION POLICY nomination was in force, which in Mandie’s case,
agreement. In Mandie’s superannuation policy, he had there was not.
Overview nominated his spouse as his beneficiary, however • in general, a trustee only pays the death benefits
she had predeceased him. He had made no other
The case involved an appeal to the Federal Court nominations. to the legal personal representative if there are
from the Superannuation Complaints Tribunal (SCT) no dependants or if there was such a direction in
regarding the payment of death benefits from a Rule 11.10 of Mandie’s fund trust deed permitted a binding death benefit nomination.
super fund. The SCT hears complaints in relation the trustee in the absence of a binding death benefit • while Mandie may have been of an age where
to public super funds (not SMSFs), but the rules nomination to pay the death benefit in the following he could have received the benefit directly, the
regarding binding death benefit nominations work way: benefit remained in the superannuation system
in the same way. “… the Trustee must pay or apply a Member’s Death at the time of his death and subject to a decision
Benefit to or for the benefit of such one or more, as of the trustee.
The court held that in the absence of a binding determined by the Trustee, of:
death benefit nomination, the trustee was under a. the Dependants of the deceased Member; The SCT concluded that since there was no evidence
no obligation to consider Mandie’s will or any other to support a greater claim on the benefit by any of
agreement. The trustee of the superannuation fund b. the Legal Personal Representative of the the adult children it was fair for the trustee to decide
was bound only by superannuation law and the deceased Member; …” to pay the benefit, in equal shares, to Mandie’s adult
trust deed. The trustee resolved to equally divide Mandie’s death children as non-financial dependants.
benefit between his three surviving dependants, On appeal to the Federal Court, the SCT’s decision
Binding death benefit nominations being his two sons and his daughter. was affirmed, therefore the executors were
A binding death benefit nomination is a written The dispute unsuccessful in their challenge.
direction to the fund’s trustee detailing how, on
the member’s death, the relevant death benefits As an executor of his estate, Evelyn applied to the What does the case mean for estate
are to be paid, whether to dependants or the legal SCT to challenge the trustee’s decision. planning and superannuation?
personal representative.
She challenged the trustee’s decision, arguing that: The significance of this case was well stated by the
If the binding death benefit nomination is valid and • the earlier settlement agreement between SCT:
in effect at the time of the member’s death, then the Mandie and his sons expressly limited the sons “Firstly, superannuation is not an asset of the estate,
trustee must comply with the binding nomination from deriving any benefit from Mandie’s estate. and a trustee is not bound to follow the directions
and pay the benefit to the nominated beneficiaries2. • in the absence of a binding death benefit of a will. Even if superannuation is specifically
A valid binding death benefit nomination generally nomination, the death benefits should be paid to mentioned in a will, it does not make it an asset
remains in effect for three years from the date it is her father’s estate (in effect, to her as the father’s subject to the terms of the will.”
first signed, last amended or confirmed. legal personal representative).
It was argued that although the settlement The Mandie case highlights that as superannuation is
The facts of the case agreement did not specifically deal with his not an asset of an estate, if someone wants to direct
superannuation, Mandie’s wish was to exclude his the specific payment of superannuation benefits,
MANDIE’S CIRCUMSTANCES AND WISHES AT sons from any interest in his or his wife’s estate then they must have in place a binding death benefit
THE TIME OF HIS DEATH and this was clear from the settlement agreement. nomination or a death benefit agreement.
Mandie died in 2011 and was survived by his three Mandie’s daughter argued it was implied by the For those who are planning their estates and
adult children: two sons and a daughter. According settlement agreement that her brothers should not superannuation, it is critical to make appropriate
to super law and his fund’s trust deed, each child receive a benefit from the superannuation policy. death benefit arrangements in order to ensure the
was a ‘dependant’.
However, the trustee maintained that usual practice wishes of the member are fulfilled.
When Mandie died, he had in place: when no binding death benefit nomination is made, [1] Stock (as Executor of the Will of Mandie,
• a life insurance policy in his superannuation fund is to: Deceased) v N.M. Superannuation Proprietary
which provided for the payment of benefits to his • first, pay the death benefit to the member’s Limited [2015] FCA 612.
nominated beneficiaries. dependants as a priority.
• a will for his estate under which his daughter, • secondly, if there are no dependants, then pay the [2] Regulations 6.17A and 6.22 of the
Superannuation Industry (Supervision) Regulations
Evelyn, was one of the executors. death benefits to the member’s legal personal 1994 (Cth).
The super fund made provision for a binding death representative. [3] Business Review Weekly, David Mandie, 26
benefit nomination; however Mandie had not made The outcome May 2011<http://www.brw.com.au/Page/Uuid/
such a nomination. bf0b0094-76de-11e0-a222- 69e61b0725c3>
The SCT found in the trustee’s favour. The SCT in
In 1995, Mandie and his sons had entered into handing down its decision, held that the trustee had
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