Munro & Anor v Munro & Anor [2015] QSC 61

In the recent Supreme Court of Queensland case of Munro v Munro, the court considered whether a binding death benefit nomination (BDBN) was valid in accordance with the governing rules of a self-managed superannuation fund (SMSF).

The case serves as yet another example of the care that must be taken in drafting BDBNs and an SMSF’s governing rules, and highlights the potential risks in drafting BDBNs.

Facts

The relevant background facts were as follows:

  • Mr Barrie John Munro (Mr Munro) practised as a solicitor and was married to Mrs Patricia Munro (Mrs Munro);
  • An SMSF was established in 2004 and Mr and Mrs Munro were trustees of the SMSF;
  • Mr Munro signed a purported binding death benefit nomination (Nomination), apparently prepared by his accountants, details of which were as follows:
    • Mr Munro’s name and particulars were written on the form;
    • the section that allowed for nominated beneficiaries had, on Mr Munro’s instructions, been completed with ‘Trustee of Deceased Estate’;
    • the percentage of benefit to be received was designated as ‘100%’; and
    • the relationship of the nominated beneficiary was described as ‘Trustee’.
  • Mr Munro died and was survived by Mrs Munro and two daughters from a previous marriage.

The dispute in Munro v Munro arose between Mrs Munro and one of her daughters (who was presumably appointed as a co-trustee shortly after Mr Munro’s death), and Mr Munro’s two daughters from a previous relationship.

Although speculative, it might be assumed that the dispute arose out of Mrs Munro’s desire to pay Mr Munro’s benefit to herself, rather than to the children of Mr Munro’s previous relationship. 

Decision

Justice Mullins of the Supreme Court of Queensland considered the following questions in the context of the Nomination and decided:

  1. Did the Nomination have to comply with the requirements of reg 6.17A of theSuperannuation Industry (Supervision) Regulations 1994 (Cth) (SISR)?

No.

  1. What did Mr Munro mean by nominating ‘Trustee of Deceased Estate’? 

The court concluded that Mr Munro intended to nominate the trustee of his deceased estate and not his legal personal representative or executor.

  1. What is the effect of the Nomination?

It was invalid because both the SMSF governing rules, and theSuperannuation Industry (Supervision) Act 1993 (Cth) (SIS Act) and SISR, require a nomination to be in favour of dependants or the member’s legal personal representative. The trustee of a deceased estate is not the same as the legal personal representative. For SIS Act and SISR purposes, a legal personal representative in this context is the executor of a member’s will or administrator of their deceased estate. The ‘trustee’ of a deceased estate is a person who acts to apply the estate assets to trusts under a will after the executor has completed the functions and duties of administration of the estate.

What have we learnt?

Justice Mullins’ comments provide useful guidance for the drafting of BDBNs and the associated provisions in an SMSF’s governing rules.

In particular:

  • A BDBN must comply with the specific requirements of the SMSF’s governing rules, not just the SIS Act and SISR (and if the SMSF’s governing rules are appropriately drafted, as noted above, SISR 6.17A will not apply).
  • If the SMSF governing rules regulate both the form and substance of a BDBN, compliance must extend to both.  It is safest for the BDBN to use the terminology in the governing rules (assuming that this, in turn, is consistent with the SIS Act and SISR). A ‘template’ BDBN is unlikely to be suitable.
  • An SMSF’s governing rules should not contain any wording that might import the requirement that a BDBN should comply with the SISR and SIS Act (as happened in Donovan v Donovan [2009] QSC 26). 
  • BDBNs are legal documents and should be drafted by appropriately experienced lawyers.

Conclusion

The case of Munro v Munro is the most recent in a number of cases that reinforce the need to understand BDBNs and the potential risks in dealing with BDBNs and death benefits.

Rarely is preparing a BDBN as simple as filling in a form, and a failure to take proper advice can lead to expensive, time-consuming and distressing litigation for those left behind.