The Royal Commission into Misconduct in the Banking, Superannuation & Financial Services Industry has revealed that a practice of false witnessing and backdating of beneficiary nomination forms has been widespread amongst some financial advisory firms, including those associated with major banks. The documents affected include the various types of death benefit nomination forms. This article outlines the proper process for witnessing these documents, the consequences of false witnessing and how a client’s death benefits are dealt with in those circumstances.
Day 11 of the Royal Commission exposed misconduct by major financial services providers. One exposure concerned the proper execution of beneficiary nomination forms used by super fund members to direct fund benefits following their death.
The witness statement of Peter Kell, Deputy Chair of the Australian Securities and Investments Commission (Kell witness statement), revealed the relatively widespread practice – within one major bank – of invalid or defective witnessing of beneficiary nomination forms. This is particularly concerning in light of the strict execution requirements prescribed by superannuation law and the dire consequences of failing to properly execute a beneficiary nomination form.
Two types of binding death benefit nominations
The two types of binding death benefit nomination forms (each with its own execution requirements), noted as having been the subject of improper execution in the Kell witness statement are:
- lapsing binding death benefit nominations – nominations that expire after 3 years, following which, a trustee is free to distribute the relevant benefits as they choose. Execution of these nominations is governed by the Superannuation Industry (Supervision) Regulations 1994 (Cth) (Regulations)
- non-lapsing binding death benefit nominations – nominations which do not have an expiry date and bind a trustee to distribute the relevant benefits in accordance with an agreement between the member and the trustee and, as such, require evidence of the trustee’s consent.
The Kell witness statement revealed shortcomings on the part of financial advisors in relation to the proper witnessing of both of these nomination types.
Proper execution of death benefit nominations
Lapsing binding death benefit nominations are subject to more precise execution criteria. Regulation 6.17A(6) of the Regulations specifies that such nominations must:
- be given to the trustee by a member of the fund
- be in writing
- be signed, and dated, by the member in the presence of two witnesses, being persons:
- each of whom has turned 18
- neither of whom is a person mentioned in the notice
- contain a declaration signed, and dated, by the witnesses stating that the notice was signed by the member in their presence.
Non-lapsing binding death benefit nominations actually form part of the Trust Deed establishing the fund and must comply with the legal requirements of executing a deed.
Consequences of defective execution
The Kell witness statement noted that, 2,490 client forms were affected by improper witnessing. The major bank has subsequently ensured that the affected forms were either re-executed with proper witnessing, or where that was not possible, trustees agreed to accept the forms despite their defective witnessing.
However, the consequences of improperly, or falsely, witnessing a signature can be significant, and can render an otherwise valid death benefit nomination ineffective. For example, a super trustee will be under no obligation to follow the directions set out in an improperly executed nomination: this may mean carefully thought out estate planning objectives are jeopardised. To ensure that a death benefit nomination is valid and binding, members and their advisors must take care that the above formalities have been strictly complied with.