This webinar presentation provides an overview of death benefit nominations in self-managed superannuation funds (SMSFs). It explains that a binding death benefit nomination (BDBN) is a key estate planning tool to dictate how superannuation benefits are distributed upon a member's death. However, BDBNs made under the Superannuation Industry Supervision Regulations are not binding for SMSFs. The presentation discusses factors to consider when deciding what type of death benefit nomination to make, including how much control and flexibility is desired. It also summarizes relevant case law on issues like paying death benefits according to a member's will.

1. Webinar
UNDERSTANDING DEATH
BENEFIT NOMINATIONS

2. @thesmsfacademy
@glenisterandco

3. This presentation provides general advice only. No direct or implicit recommendations are
given in this presentation. This means that the general advice provided has not been
prepared taking into account any individual’s financial circumstances (i.e. investment
objectives, financial situation and particular investment needs).
The SMSF Academy Pty Ltd believes that the information in this presentation is correct at the
time of compilation but does not warrant the accuracy of that information. Save for statutory
liability which cannot be excluded, The SMSF Academy disclaims all responsibility for any loss
or damage which any person may suffer from reliance on this information or any opinion,
conclusion or recommendation in this presentation whether the loss or damage is caused by
any fault or negligence on the part of presenter or otherwise.
© The SMSF Academy, 2014
GENERAL ADVICE DISCLAIMER

4. Misconception still exists that an individual’s
Will does not cover any interests within a
superannuation funds
(McFadden v Public Trustee for Victoria 1981] 1 NSWLR 15, 22)
Key estate planning tool for wealth
within a SMSF is a Binding Death Benefit
Nomination (BDBN).
“A Will that covers superannuation interests”

5. We are dealing
with a trust,
not personal
assets

6. Exercise of discretion by person other than trustee
Section 59(1) of SIS Act provides that generally
only a trustee can exercise discretion under the
fund’s governing rules (other than a SMSF).
Section 59(1)(A) provides exception allowing
discretion to be exercised by someone other
than trustee, provided that the applicable
regulation is complied with.
THE LAW

7. Payment of benefit on or after death of member
(Act, s 59(1A))
SIS Regulation 6.17A contains number of conditions in
order for someone other than the trustee to exercise
discretion in respect of death benefits.
Notice must contain elements including:
• Nominated dependant(s) or LPR
• Proportion of benefit to be paid to that person (or
each persons in notice)
• Signed and dated by the member in the presence
of two witnesses (18 or over and not mentioned in
notice)
• Declaration signed and dated by witnesses stating
notice was signed in their presence
• Ceases effect after 3 years from date signed by
member
THE LAW

8. Does section 59 of the SIS Act
and Regulation 6.17A apply to
SMSFs?

9. SMSFD 2008/3
Is there any restriction
in super laws on a
SMSF trustee
accepting from a
member a binding
nomination of the
recipients of any
benefits payable in
the event of the
member's death?
Section 59 of SIS Act and SIS
Regulation 6.17A do not apply to
SMSFs.
This means that fund’s governing rules
may permit members to make death
benefit nominations that are binding on
the trustee, whether or not in
circumstances that accord within the
rules in SIS Regulation 6.17A.
DBN is not binding on trustee if
nomination includes individual who
cannot receive benefit per operating
standards in SISR.Non-lapsing binding
death benefit nomination

10. EXAMPLE
In 2011, Jen (member of SMSF),
makes a valid binding death
benefit nomination (BDBN) under
governing rules of SMSF.
Nomination to pay 100% benefit to
Tony (spouse). Trust Deed states
BDBN is valid for three years.
In 2013, Jen and Tony divorce.
In 2014, Jen remarries but dies later
that year. Nomination made by
Jen in 2011 had neither been
revoked or amended.
SMSF trustee not required to follow
the DBN made by Jen in favour of
Tony (no longer spouse). He has
ceased to be a dependant for SIS
purposes.
Death benefit will be paid at
discretion of the SMSF trustee
Trustee must comply with Reg. 6.22
and not cash the benefit in favour
of a person other than the
executor of Jen’s deceased estate
or any dependants.

11. What does the trust deed say?
Trustee will retain control of
distribution of death benefits
Trustee must abide by the
direction in BDBN where
the nomination is valid
and current
Where accepted, will
become a rule of the fund

12. In-specie asset transfer
Choice & flexibility as a tax
dependant (per super interest
basis)

13. What type of death benefit
nomination to make?

14. Total controlTotal flexibility
Specify exactly who will
get what and how they
will receive it with no
ability to modify
Allow beneficiaries to
decide for themselves
what they receive and
how they receive it
How much flexibility
do you want your
beneficiaries to have
over the decision?
1 How much control do
you want to have over
the payment of funds to
specific beneficiaries
and in what form?
2

15. When would you have a Non-binding DBN in
place?
Scenario:
John & Jane Citizen are happily married with 2 (now
adult) children.
John wishes to provide for Jane and if Jane predeceases
John, the benefit is split equally between the children?
Cascading the DBN conditions?
Can you have part of the notice non-binding and part
binding?
e.g. Jane has non-binding option, but binding instructions
for children?

16. Ask yourself? Scenario Considerations
Do you want a specific sum or
percentage of the fund to go to a
specific beneficiary and have it paid in
a specific non-changeable form?
I want to provide a non-commutable
income stream to a dependant (i.e.
spouse or child) of $26,000 p.a.
• Death Benefit Rule;
• Non-lapsing binding death benefit
nomination
• May need to amend trust deed
Do you want a specific sum or
percentage of the fund to go to a
specific beneficiary, paid in a specific
manner but not make the payment
compulsory?
I would prefer this dependant (i.e.
spouse) to receive an income stream of
$26,000 p.a. but I want them to have the
flexibility to change the method at the
time (say to take lump sum or partial
lump sum)
• Death Benefit Rule; or
• Binding DBN (non-lapsing) to bind the
amount or percentage to the chosen
beneficiary/ies; with
• Complete Non-BDN to state you
preference as to the method or
payment (i.e. lump sum, income
stream or combination of both)
Do you want a specific sum or
percentage of the fund to go to a
specific beneficiary, paid in a form
chosen by the beneficiary?
I only want the children of my first
marriage to be the beneficiaries
• Death Benefit Rule
• Binding DBN to bind the amount or
percentage to your chosen
beneficiaries
Do you want to suggest what you would
like to happen but will allow the
beneficiary or Legal Personal
Representative (LPR) to change this at
the time?
I would generally like my children to
share my benefit equally but want to
give flexibility in case one has more
needs than the other at the time I die
• Complete a non-binding DBN only
Do you want to leave the decisions to
your beneficiaries or Legal Personal
Representative to deal with at the time?
• Make no nomination or non-binding
DBN
TotalcontrolTotalFlexibilityDECISION MATRIX

17. Donovan v Donovan [2009] QSC 26
Katz v Grossman [2005] NSWSC 934
Ioppolo & Hesford v Conti &. Anor
[2013] WASC 389

18. IOPPOLO & HESFORD v. CONTI [2013]
1
2
Is it compulsory for the surviving Member/Trustee of SMSF to
appoint a deceased Member’s Legal Personal
Representative (LPR) as a trustee of the fund for the
purposes of paying a death benefit?
Is the surviving Member/Trustee of a fund compelled to pay
the deceased Member’s death benefit as specified in the
deceased Member’s Will?
Western Australia Supreme Court Case that make two distinct rulings:

19. IOPPOLO & HESFORD v. CONTI [2013]
Augusto & Francesca
both trustees and
members
X
BEFORE AFTER
Corporate Trustee
Augusto sole member
and director

20. IOPPOLO & HESFORD v. CONTI [2013]
2002
BDBN to Augusto
2006
BDBN to Augusto
2005
Will provided super death
benefit to be paid equally to
children
2010
Francesca died
Lapsed after 3 years
Augusto paid death
benefit to himself
Lapsed after
3 years

21. IOPPOLO & HESFORD v. CONTI [2013]
AFTER
Corporate Trustee
Augusto sole member
and director
Should Francesca’s Executors have
been appointed as additional Trustees
to the Fund for the purposes of paying
the death benefit?
Court found in favour of Augusto

22. LESSON TO BE LEARNED?
Ensure the Fund’s trust deed enables a
member to nominate who will be their
replacement trustee of the Fund when they
die; and
Make sure that the member has a valid and
up-to-date Death Benefit Nomination
1
2

23. DEALING
WITH
BLENDED
FAMILIES

24. TIPS &
TRAPS
Give this area the attention it
deserves!
Importance of regularly reviewing
DBNs and circumstances can change
Don’t do it yourself – play role of
project manager (identification
process)
Can’t deal with the payment of super
death benefits in isolation

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