01/07/2013

Recently we have had a number of inquiries from clients concerned about what would happen if they and their spouse or partner (to whom they have nominated their super benefits under their Binding Death Benefit Nomination) were both to suddenly be deceased at the same time.

Using a survival period as a pre-condition
If a SMSF has two members say, Fred and Wilma, the simultaneous death or death in unknown sequence problem is best handled by having a survival period for the nomination and alternate objects to be effective.

In principle there is nothing in the Superannuation Industry (Supervision) Act 1993 (Cth) (‘SIS Act’) to preclude a nomination in an SMSF being made “To Wilma but if Wilma does not survive me by 30 days then to my children”.  Wilma’s nomination would be the mirror image to Fred’s.

What you will need to check before making this type of nomination is whether the Trust Deed/Governing Rules of the relevant fund expressly permits a nomination which has alternate objects and a survival period.   

If so then, as the children of Wilma are SIS Dependants they can be allocated the death benefit.  The allocated death benefit will most likely have to be paid as a lump sum (as the children may be over 18 and financially independent) and the taxable portion of the death benefit will be taxed in their hands.

The advantage of a survival period nomination is that if Fred and Wilma die at the same time or one after the other but within 30 days – then Fred’s benefit goes directly to the children as does Wilma’s benefit.

What if no survival period is included?
If the trust deed does not permit a nomination which has alternate objects or a survival period then the legally presumed order of death would apply:  ie if the order of death of Fred and Wilma are not known, then the elder is presumed to have died first.  

Assuming Fred is older and each nomination is simply to the other:  Fred’s is to Wilma and Wilma’s to Fred,  then Fred will be presumed to have died first, so his Nomination would apply as Wilma is allocated his benefit.  

Fred’s benefit is then payable to the Estate of Wilma (as she was deemed to be alive at the time of his death and so the benefit falls within her estate).  Wilma is presumed to have died later so her nomination is activated – her benefit cannot be paid to Fred (as Fred has predeceased and the LRP of Fred is not a permitted object of the benefit) – so her nomination is ineffective.  

The fall-back position is that the trustee will allocate Wilma’s death benefit.  With both Fred and Wilma gone there is doubt as to who will act as the trustee of the fund and whether they would act in the manner that Fred and Wilma would have wanted.

The safest option is to prepare the BDBN with a survival period and alternate beneficiary should the Trust Deed allow for this – particularly if Fred and Wilma have children from other relationships who they may want to nominate to receive their death benefits.  

Should you have any queries or wish for us to provide you with further advice in relation to preparing BDBN for you or your clients, please contact Townsends Business & Corporate Lawyers on (02) 8296 6222.