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Proctor : May 2015
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Key superannuation issues scrutinised “When at last we are sure, you’ve been properly pilled, then a few paper forms, must be properly filled. So that you and your heirs, may be properly billed.” – Dr Seuss1 There are 534,000 self-managed superannuation funds (SMSF) in Australia holding assets worth about $557 billion.2 With such vast sums held in superannuation, it is an integral part of the estate planning process. So the importance of properly completing the necessary forms to effect transfer on death ought not be underestimated. To that end, form-filling was central to the decision of Munro & Munro & Anor [2015] QSC 61 in which the court considered the validity of a binding death benefit nomination (BDBN) in a SMSF. This case is important because: • It belies the supposed simplicity of form-filling. • It emphasises and confirms the distinction between an executor and a trustee. • It confirms that regulation 6.17A of the Superannuation Industry (Supervision) Regulations 1994 (Cth) does not apply to an SMSF unless the SMSF trust deed requires compliance. The deceased, Mr Munro, a solicitor, had a SMSF.3 In 2009 he executed a BDBN, prepared by his accounting firm.4 The form directed 100% of his entitlement in his SMSF be paid to the “Trustee of Deceased Estate”, not to his legal personal representative (LPR).5 Per clause 2.1 of his will, the executors of Mr Munro’s estate were his second wife, Patricia Munro, and his two daughters from his first marriage. Per clause 2.2 they were also the trustees of his estate.6 Mr Munro’s estate contained a nominal amount and there was no grant of probate. Mrs Munro was a trustee of the SMSF and on his death Mr Munro’s daughter, Ms Pooley, replaced him as trustee of the SMSF. A dispute broke out between Mrs Munro and the deceased’s two daughters as to the validity of the BDBN. The primary issues before the court were: “(1) in order be to a binding death benefit nomination for the purpose of the fund, did Mr Munro’s death benefit nomination have to comply with the requirements of reg.6.17A of the SIS Regulations? “(2) what did Mr Munro mean by nominating the trustee of his deceased estate? “(3) what is the effect of the death benefit nomination form signed by Mr Munro on 22 September 2009?”7 As to the first question: The issue here was to ascertain whether the form of the nomination must comply with regulation 6.17A.8 Reg.6.17A arises through the operation of s59 of the Superannuation Industry (Supervision) Act 1993 (Cth) (SIS Act). Relying on a non-binding ruling by the Commissioner of Taxation in SMSFD 2008/3, the applicants argued that reg.6.17A did not apply, ergo the statement in Mr Munro’s nomination should be given effect to.9 The respondents relied on the decision Donovan v Donovan [2009] QSC 26 (Donovan) to argue that governing rules of that fund included a requirement that, in order to make a BDBN, it had to be in the form required by the statutory requirements, which imported the requirements of reg.6.17A in respect of the form of the BDBN. Therefore as the nomination did not comply with reg.6.17A, it was invalid. In order to reach a conclusion, the court had to consider the application of s59(1) of the SIS Act. S59(1) generally provides that only a trustee may exercise discretions within the fund’s governing rules. Therefore, it is argued that a BDBN is not allowed because, instead of the trustee of the superannuation fund making the decision, it is the individual directing the trustee as to where to pay the proceeds. Importantly, s59(1) expressly only applies to superannuation funds that are not SMSFs. Section 59(1A) contains an exception. It provides that a fund’s governing rules may permit a discretion to be exercised by someone other than the trustee in respect of paying death benefits, on the condition that the relevant regulation is complied with. The relevant regulation is reg.6.17A. Reg.6.17A prescribes the form of the notice that must be given in a BDBN. The court held that although SMSFD 2008/3 was not binding on the court, it did set out a logical approach to the construction of s59 of the SIS Act and was correct “for the purpose of determining the applicability of reg.6.17A of the SIS Regulations to the fund”.10 However, given s59(1) and the exception under s59(1A) of the SIS Act do not apply to an SMSF, 11 the requirements of reg.6.17A do not apply to a SMSF. The court distinguished the decision of Donovan, as it was not necessary in that matter for the court to make a determination on the question of whether the rules of that fund imported reg.6.17A. In answer to the second issue the court held: In the alternative, the respondents argued Mr Munro’s BDBN failed because it did not comply with reg.6.22, which required the nomination to be in favour of “either Mr Munro’s legal personal representative or a dependant or dependants. The definition of legal personal representative in s10 of the SIS Act means, in relation to Mr Munro, the executors of his will and does not extend to the trustee of his estate.”12 42 PROCTOR | May 2015 back to contents
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