A cautionary tale about the need for interaction between Wills and self-managed super funds

The recent Queensland Supreme Court decision of Munro v Munro[1] highlights the need to ensure that a person’s Will and their self-managed super fund (SMSF) interact with each other so as to avoid any unintended consequences.    

Facts

The deceased wished to have the death benefit payable from his SMSF paid into his estate for distribution in accordance with the terms of his Will. 

A mechanism was available to do this.

The deceased’s SMSF trust deed contained a provision which enabled the deceased to make a binding death benefit nomination (BDBN) in favour of his spouse, any children, any person with whom he had an “interdependency relationship”, or to his legal personal representative (in other words, the executor under his Will).

In the absence of a valid BDBN, the trustees of the SMSF had the discretion as to whom the death benefit would be paid.

The BDBN had to comply strictly with the terms of the SMSF trust deed to be valid. 

In the BDBN, the deceased specified as his nominated beneficiary the “Trustee of Deceased Estate”.  This was despite an instruction in the BDBN form that the nominated beneficiary had to be the deceased’s spouse (legal or de facto), child (including adopted or step-children), financial dependant, interdependent or the executor of his Will (to be written as “the legal personal representative”).

The terms of the deceased’s Will differentiated between the role of the executors of the Will, and the role of the trustees of the trusts created by the Will.

The BDBN which referred to the “Trustee of Deceased Estate” rather than to the deceased’s “legal personal representative” was found not to be a binding nomination for the purposes of the SMSF.2

Analysis

The Court acknowledged that although the terms “trustee” and “executor” are often used interchangeably in an everyday context, they are distinct at law.3

The deceased in nominating the trustee of his estate in the BDBN and not his executor, failed to comply strictly with the SMSF trust deed. 

The result of the failure of the BDBN to comply strictly with the terms of the SMSF trust deed was that the trustees of the SMSF, and not the executors of the Will, had the power to determine to whom the death benefit would be paid.

The trustees of the SMSF, in exercising their discretion as to whom to pay the death benefit, did not pay the death benefit to the beneficiaries which the deceased had intended to be the recipients as provided for in his Will.

Cautionary note

In making testamentary arrangements, there is a need to ensure that there is interaction between the terms of the Will and any SMSF.

Poor drafting can lead to unintended consequences.  



[1] [2015] QSC 61.

[2] Ibid, [ 50].

[3] Ibid, [40].