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07 September 2023

Does my binding nomination need to follow the trust deed to a tee?

Does a binding nomination need to follow the trust deed to a tee in the self-managed superannuation fund space? In this video, partner Hayley Mitchell addresses this topic using recent case examples.

Video transcript

Hi, I’m Hayley Mitchell, a partner in our private clients team. I specialise in succession law and have a special interest in superannuation disputes. Today I’m going to be talking about whether or not a binding nomination needs to follow the trust deed to a tee in the self-managed superannuation fund space. We’ve seen a lot of cases over the last 10 to 15 years address this topic. So, I’m going to talk about some of the recent cases and the outcomes of those cases.

Hill v Zuda

The High Court case of Hill v Zuda definitively confirmed that for a self-managed super fund the trust deed is paramount and the superannuation fund is not confined or restricted to the terms of the superannuation legislation when it comes to the validity of a binding death benefit nomination. Hill v Zuda predominantly considered regulation 6.17A, which deals with the requirements for a binding nomination and in particular, the three year lapsing rule. The outcome of that case was, provided that the superannuation fund trust deed doesn’t import the regulation 6.17A or otherwise doesn’t contain terms about the period of time the nomination is valid, a self-managed super fund can provide for a non-lapsing nomination. However, there have been a number of other cases which also demonstrate just how important the trust deed is when it comes to a binding nomination for a self-managed super fund.

Further examples

For example, in cases like Munro v Munro, Cantor Services Management v Booth and Donovan v Donovan, the court has always taken the form over substance approach when interpreting the terms of the superannuation trust deed and the binding nomination. This means that a binding nomination is unlikely to be valid using a vibe test or looking at what the intention of the parties were. Because the courts have used a form test, we really need to look at whether the binding nomination strictly and very strictly complies with the terms of the trust deed. This strict approach taken by the courts has been confirmed again in a recent Queensland Supreme Court case of Williams v Williams.

Williams v Williams

In Williams v Williams we had Anthony Williams who died. He left his spouse being a second marriage and his two sons from a former relationship. Anthony had a self managed super fund and he had put in place a binding death benefit nomination, directing half of the balance of the super to his wife and the other half to his estate. At the time the binding nomination was signed by Anthony, both Anthony and his son Paul were the joint trustees of the superannuation fund. After Anthony’s death, a dispute arose as to whether the binding nomination was valid. Paul, as the second trustee of the fund, claimed that he had not received notice of his father’s binding nomination, and that was what was required under the terms of the trust deed for a valid binding nomination. Anthony had signed his binding nomination, but there was no evidence to demonstrate that he had given notice of that binding nomination to Paul. Paul hadn’t signed it as a co-trustee of the fund at all and there was nothing else to suggest that Paul would have received notice of the nomination. Anthony’s spouse, who was set to receive 50% of the superannuation balance under the binding nomination, argued that it was valid despite Paul not receiving notice. She argued that it was enough that Anthony, as the other co-trustee, had received notice of the binding nomination.

Terms of the trust deed must be held valid

So, the question the court had to determine was whether that satisfied the terms of the trust deed. In making its decision, the court commented that giving notice to one of the trustees couldn’t satisfy the requirements under the trust deed. The court found that it would be contrary to the terms of the trust deed to allow a beneficiary to create a binding obligation on the trustees without giving notice to all of them. Accordingly, the binding nomination was held to be invalid. So, you can see how this case of Williams v Williams demonstrates just how strictly you need to follow the terms of the trust deed for the binding nomination to be held valid. Given the strict application that the courts are taking, we have seen a rise in disputes over superannuation death benefits and whether binding nominations are valid. So, it’s important that in the estate planning phase, careful consideration is given to the terms of the trust deed and the binding nomination. If it is uncertain whether you can comply with the terms of the trust deed of the super fund, then you need to consider whether the terms of the fund itself are varied prior to making the binding nomination.

 

Contact me or a member of our private clients team to discuss all issues concerning binding nominations, whether it’s looking at the planning phase or looking at a dispute over a superannuation death benefit.

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This publication is for information only and is not legal advice. You should obtain advice that is specific to your circumstances and not rely on this publication as legal advice. If there are any issues you would like us to advise you on arising from this publication, please let us know.

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Hayley Mitchell
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