The case of Katz v Grossman [2005] NSWSC 934 (16 September 2005) was an early highlight of the need for members of a self-managed superannuation fund (SMSF) to either have left a binding nomination as to how they want their superannuation benefits to be paid on their death (death benefits) or to have considered it but have total trust that those controlling the trustee of the SMSF after their death will do the right thing.
In Katz v Grossman, at the time of his death, Mr Katz and his daughter were the trustees of Mr Katz’s SMSF. The trust deed and superannuation law permitted the surviving daughter to appoint her husband as her co-trustee of the SMSF. As trustee and as there was no binding nomination about the payment of Mr Katz’s death benefits, the daughter and her husband then paid Mr Katz’s death benefits for the daughter’s benefit to the exclusion of her brother. The court held that this conduct was legal.
Providing the trust deed permits for a nomination, one can be made either under section 59(1A)/regulation 6.17A of the superannuation laws or in the case of a SMSF, as a nomination permitted by section 59(1) of the superannuation laws. The ATO in SMSFD 2008/3 supported this view that a member of an SMSF can make a binding non lapsing but revocable death benefit nomination but only if the trust deed provides for it to happen. However, after the 2022 High Court case of Hill v Zuda, it can be unequivocally said that the 3 year lapsing provisions of regulation 6.17A of SIS have no application to a SMSF (subject of course to what is in the deed).
If there is no nomination that is binding on the trustee, the superannuation law permits a trustee of a SMSF to pay death benefits to a superannuation dependent or the legal personal representative of the deceased member (i.e. the executors of the estate of the deceased member, but the superannuation laws do not allow reference to the executor). So being the trustee of the fund, as in the Katz v Grossman case, can be a very important role if there is no binding death benefit nomination.
If a fund trustee pays death benefits to the legal personal representative of a deceased member, those benefits will typically form part of the residue of the estate and be distributed accordingly, unless of course specific provision has been made under the will about what is to happen with them.
However, without a binding nomination, death benefits cannot be specifically gifted to a person other than a superannuation dependant unless they first find their way into the estate of the deceased member.
What should you do when using a binding death benefit nomination?
If you want to leave a binding death benefit nomination, make sure that:
- Your SMSF trust deed permits them;
- You comply with the terms of the trust deed and the superannuation law in making it;
- It aligns with what you want to achieve in passing your wealth on your death, including under your will; and
- You constantly review it for its currency.
Disclaimer
The information in this article is general in nature and is not intended as legal advice. You should not do or fail to do anything in reliance on information in it. We do not accept any responsibility for any loss that you suffer if you do. You should seek professional advice before you do anything about the issues set out in this article.
