Frequently Asked Questions

Ultimately, you are leaving yourself and your family at risk.

If you lose your mental capacity and you don’t have a signed power of attorney and guardianship appointment:

• even your own spouse cannot make financial and personal decisions for you;
  
  
• an application may need to be made to a government tribunal for someone to be appointed to manage your financial needs and personal care;
  
  
• this person may not be your  first choice and they may not manage your  affairs as you would want them managed.

Without an effective optional testamentary trust will in place, assets may not pass in the way you want and your beneficiaries may lose out:

• your beneficiaries may pay unnecessary tax on the income from investment of the gifts you make to them;
  
  
• your assets may be exposed to the various risks that need to be taken into account when passing assets on death.

PaxAnimi's structure for effective estate planning takes into account its 5 stages, 7 rules and 7 risks to consider for what happens if you lose mental capacity and when you die.

By being aware of these things, you can quickly and easily develop complete estate planning, ensuring that your family and your wealth gets the taxation benefits and risk protection benefits of effective estate planning in the way you want.

• Stage 1 – The fact find | Identifying your personal and financial circumstances.
  
  
• Stage 2 – What happens on loss of capacity | Determining who is to manage your assets if you lose mental capacity, also known as your power of attorney and your guardianship appointment.
  
  
• Stage 3 – What happens on death | Determining the plan for what you want to happen when you die, including with your assets.
  
  
• Stage 4 – Tax and risk | If Stage 3 is about what happens when you die, Stage 4 is about how you want it to happen. This stage is all about showing you how testamentary trusts and other protective measures can reduce tax and protect assets against the risks that need to be considered when passing assets on death.
  
  
• Stage 5 – Housekeeping | Housekeeping to align your personal and financial circumstances to get the best possible outcome from your estate planning.

The 7 rules of effective estate planning are set out below. Follow the rules unless there are reasons not to and then, make decisions to suit.

• Rule 1 – Expectations | Manage expectations of your family and beneficiaries by having the hard conversations now to avoid disharmony later.
  
  
• Rule 2 – Answer | There is no correct answer. Estate planning is about making informed decisions that are right for you.
  
  
• Rule 3 – Trust | Ensure that you trust the people that you give assets to and/or who will be in control of your assets if you lose capacity and when you die.
  
  
• Rule 4 – Shadows | Don’t box at shadows. Normally, passing control of assets on loss of mental capacity and passing control and/or ownership on death happens very smoothly, so why complicate it by providing for things that are not likely to happen?
  
  
• Rule 5 – Tax & flexibility | Keep your estate planning documents as flexible as possible while allowing for tax planning opportunities.
  
  
• Rule 6 – Years of law | Trust the process. Unless you require something specific, it is likely that the documents used and the provisions of them will be right for you.
  
  
• Rule 7 – Review | Estate planning is not set and forget. Plan based on your current circumstances and revisit your plan every year when you do your tax.

When developing your estate planning, there are a number of options to be taken into consideration.  By helping you to choose what is best for your assets and your beneficiaries, you can create opportunities to maximise the taxation benefits and protect against the risks of passing wealth on death for all parties involved.

Effective estate planning is a much more important task than completing a will kit from the newsagent or a basic online will. Without effective estate planning, you risk missing out on the taxation benefits and risk protections usually dealt with by an effective estate planning service.

That’s where PaxAnimi^® comes in.  PaxAnimi’s innovative Screening Tool goes far beyond a standard will kit to deliver a comprehensive, online estate planning service that can replace the need for costly, face-to-face legal advice of traditional estate planning, ensuring that you and your family are protected in the way you want.

PaxAnimi^® is also a law firm, not an IT service provider. With PaxAnimi^® you are dealing with experienced estate planning lawyers with $10m professional indemnity insurance. It is just that PaxAnimi's will and estate planning documents are delivered in real time, online. Saving you time and cost. 

The Standard Service or the Simple Service? 

Testamentary trust v no Testamentary trust?  Which solution to use.

Effectively preparing for your loss of capacity and death is about much more than purchasing and signing a basic online will, power of attorney and guardianship appointment or a $100 document kit from the newsagent.

Every day you protect and care for yourself and your family.  If you want to protect and care for your family, your family’s assets and your family’s future if you lose your capacity and when you die, you need effective estate planning, which is about much more than a set of documents.

Apart from signing a carefully considered will, power of attorney and guardianship appointment, effective estate planning ensures that what you want to happen when you lose capacity or die happens in the way you want it to happen and with the maximum effect.

Effective estate planning also deals with the taxation considerations for your family and the risks to your family’s assets if you lose your capacity or die.  PaxAnimi's innovative and unique online Screening Tool and fixed price effective estate planning service will lead you through each of these things.

PaxAnimi's online service will bring your estate planning up to speed.  The way it should be, giving you peace of mind about your planning for loss of capacity and death.

You will not get all of that by purchasing and signing a basic online will, power of attorney and guardianship appointment.

You can get all of that by using PaxAnimi’s innovative and unique Screening Tool and fixed price effective estate planning service.

Standard Service: Risk management for your effective estate planning

PaxAnimi's Standard Service deals with risks 3 to 7 of the 7 risks to the passing of wealth on death.  If you need a solution for risks 1 and 2, you will need to discuss that separately with PaxAnimi^®.

Risk 1 – SPENDTHRIFT | What if an intended beneficiary is not good at managing money and you want to protect them against that?

Risk 2 – SPECIAL NEED of a beneficiary | What if an intended beneficiary has a physical and/or intellectual disability that means they are not able to manage the wealth themselves?

Risk 3 – SPECIAL NEED of a beneficiary | What if an intended beneficiary develops a drugs, alcohol, gambling or mental illness problem before they take control of their gift?

Risk 4 – BANKRUPTCY of a beneficiary | What if your intended beneficiary is bankrupt when you die or becomes a bankrupt after you die having inherited assets from you?

Risk 5 – Betrayal by surviving partner | Will your surviving partner change their will after your death and disinherit your children or other intended beneficiary? Will they give the wealth away?

Risk 6 – Divorce of a beneficiary | What if  a relationship of a beneficiary breaks down (including a new relationship of your surviving partner after you die or a relationship of a child)? Will the assets that you leave them be exposed in a claim by their partner?

Risk 7 – Death of a beneficiary | What if a beneficiary (including your surviving partner after your death or your children) dies and their partner or children challenges their will as they have not made adequate provision for their surviving partner or children? Will the assets that you intend to leave your surviving partner or children be exposed in a claim by their partner or children?

Taxation benefits for your effective estate planning

PaxAnimi's Standard Service also does the following things for you:

• Gives your surviving spouse and children or other intended beneficiary tax advantages after you die in the using of the personal wealth that you want to leave to them.
• Gives your surviving spouse and each child or other intended beneficiary the option after you die to access those tax advantages through a tax effective and flexible trust that can come into existence on your death.
• Gives your surviving spouse and each child or other intended beneficiary the option after you die to access those tax advantages through a tax effective and capital protected trust that can come into existence on your death.

Further benefits of PaxAnimi's Standard Service for your effective estate planning

PaxAnimi's Standard Service also does these further things for you:

• Makes an allowance after you die that may be required to get equality between your children because during your life you have given more to 1 or more of them than to the others.
• Transfers control of your companies and trusts after you die to your surviving spouse and eventually to your children but so that a majority of your children cannot do the wrong thing by a minority of them, where decisions need to be made by unanimous resolutions.
• Staggers the timing for the passing of control after you die of the gifts you intend for your beneficiaries so that the beneficiaries do not get control of too much wealth too soon.
• Gives you the knowledge of what housekeeping needs to be done so that you can make sure that assets pass as you want and you can maximise the taxation benefits and protect against the risks by using testamentary trusts that can come into effect after you die.

Simple Service: If you don’t want the taxation benefits and risk protections offered by the Standard Service, then the Simple Service may be able to offer you what you need.

In deciding which of PaxAnimi's services to use - either the Standard Service or the Simple Service, you can make your choice based on the needs you have for your estate planning outcomes. Your choice of service may be based on the following 2 things:

1. Whether you ask for your beneficiaries to be able to tax effectively use the income from the investment of any gift you make to them, or;

2. Whether you say you are concerned about at least 1 of the following:

• A partner/spouse of a beneficiary getting control of a testamentary trust set up for a beneficiary
• A partner/spouse of a beneficiary being a capital beneficiary of a testamentary trust set up for a beneficiary
• Risk 4 (bankruptcy of a beneficiary)
• Risk 6 (divorce of a beneficiary)
• Risk 7 (death of a beneficiary and a challenge to their will)

If you answered 'yes' to any of the above questions, PaxAnimi's Standard Service is likely to provide the outcome you need from your estate planning.

If you don’t answer 'yes' to any of the above questions, you must accept that your estate planning is not going to do any of the above things for you.

If you are undecided about which of PaxAnimi’s services to use, as a guide, if you have more than $1,000,000 of personal wealth, the taxation benefits and risk protections that form part of PaxAnimi's fixed price Standard Service provides a very powerful estate planning solution.  This is a guide only, as amounts of up to $1,000,000 may also benefit from the taxation benefits and risk protections delivered by the Standard Service.  The indicative wealth amount may include wealth that may arise from superannuation, including life insurance inside superannuation, as well as wealth that may arise from life insurance from outside of superannuation.

2. Concessional taxation treatment

Normally, if a child under the age of 18 receives income from a trust that is not set up under a will (ie a non testamentary trust will or what is called an inter vivos trust), penal rates of tax apply after approximately the first $600 of income.

However, Australian income tax laws give a concessional taxation treatment on income of minors that is derived on an investment of property of a trust arising under a will.

In this instance, if instead of paying part of the $350,000 of income to a company, it was all paid equally to Tom’s wife and his 4 children, the total income tax would be $71,485, saving $86,015 in tax compared to the $157,500 tax if all of the $350,000 income was paid directly to Tom.

3. Streaming of income

If, 8 years after the date of the Wilson’s death, the home is sold and a $200,000 capital gain arises, income streaming could be used to eliminate the gain with no tax being payable.

As the asset (home) had been held in the trust for more than 1 year, there is only a taxable capital gain of $100,000 after the 50% general capital gain tax discount is applied.

If Tom’s wife had capital losses of $100,000, the capital gain could be streamed to the wife, resulting in no tax at all being payable on the $100,000 taxable capital gain.

This streaming example is only an example, but it shows the power of being able to stream income with different characters to different beneficiaries, which can also apply to dividends with the attached franking credit benefit.

The above things could only happen if the shares, cash and investment property were taken in a testamentary trust (or 4 testamentary trusts) instead of in Tom’s name personally and the testamentary trusts have all of the required provisions in it to allow the best taxation outcome.

In summary, through considered and effective estate planning, the Wilson’s were able to protect their beneficiaries and save them:

• $52,743 in tax by splitting the income through multiple testamentary trusts including to a company
• approximately a further $33,262 in tax by also paying income to minor beneficiaries instead of to a company
• $100,000 by streaming income tax effectively

This FAQ tells you how superannuation will be dealt with as part of the PaxAnimi^® fixed price estate planning service unless you make specific contrary arrangements including about cost.

You should read the rest of the PaxAnimi^® superannuation FAQs if you want to understand the why, what and how of making nominations about what is to happen with your superannuation benefits when you die.

The PaxAnimi^® fixed price estate planning service considers wealth held in superannuation.

Our comments generally about superannuation benefits apply to SMSFs and non SMSFs. However, if your superannuation is held in a non SMSF and you want your superannuation to be paid in a particular way, you should carefully consider whether you should or should not leave a binding death benefits nomination because in the case of a non SMSF, there is less likelihood that your wishes will happen without a binding nomination about what is to happen with your benefits when you die.

Superannuation benefits do not automatically form part of your estate and pass with your other assets under your will. That does not mean that what you want to happen with your superannuation will not happen unless you put in place specific arrangements to make it happen.

Unless specific arrangements are in place for your superannuation, not only might your superannuation benefits not go where you want them to go when you die, but more tax than is necessary may be payable. However, that does not happen just because you did not put those specific arrangements in place.  It only happens as those left in control after your death did not do with your superannuation benefits what you wanted and an unfortunate consequence of that can be, but will not necessarily be, that the best tax outcome did not result.

PaxAnimi^® has developed mechanisms to give certainty of outcome with your superannuation benefits if that is what you want. However, all of those structures are not going to be put in place as part of the PaxAnimi^® fixed fee estate planning service.  If you want them, you will need to make specific arrangements with us about them including about cost.

While wealth held in a superannuation fund is certainly considered as part of the PaxAnimi^® fixed price estate planning service, please remember that you only get specific solutions for this sort of wealth if you ask for it. Otherwise, your superannuation is dealt with as follows:

• you trust your executors, beneficiaries and those controlling your superannuation fund trustee when you die to do the right thing without you having to leave specific arrangements in place about what is to happen with your superannuation when you die;
  
  
• we assume you do not have an existing binding or non binding nomination about who is to receive your superannuation benefits when you die OR if you do, you will separately cancel it just in case it is inconsistent with what is set out in what you tell us in completing the Screening Tool;

Important note   This approach assumes you trust those controlling the superannuation fund trustee and your executor and beneficiaries to do the right thing with your superannuation benefits when you die.

We assume you understand that if you do not have an existing binding nomination about who is to receive your superannuation benefits when you die OR you will cancel an existing one, you are confident that what you want to happen with your superannuation benefits when you die will happen without the need to have specific arrangements in place, including a binding nomination about your superannuation.

Important note  This is easier to manage in a SMSF than it is in a non SMSF.

In a non SMSF you normally have absolutely no control over the decision about the payment of your superannuation benefits when you die unless you have left a binding death benefits nomination.  So if you are in a non SMSF, you may need to further consider the way your superannuation is going to be managed.  That is done separately with your superannuation provider and not through the PaxAnimi^® service.  We can help you with that if you ask us and we make arrangements to do so, including about cost.

We include in your will a provision by which your intended beneficiaries will receive a gift adjustment where superannuation benefits are paid to 1 or more beneficiaries and not to the others;

Important note  This only works effectively where there is enough personal wealth from which to make the gift adjustment.

In the case of couples, we include in your will a provision by which your surviving spouse/partner may claim all of your superannuation benefits to the exclusion of any children, which stops the children from objecting to that happening.

If you feel that this will not work for you and your beneficiaries, you must raise it with us.

This FAQ tells you how your family company (that does not act as trustee of a trust) will be dealt with as part of the PaxAnimi^® fixed price estate planning service unless you make specific contrary arrangements including about cost.

The PaxAnimi^® fixed price estate planning service deals with wealth held in a family company (not acting as a trustee).

If a family company holds part of your wealth, you will need to consider how to pass control of the company when you die. Normally this can be done in the way you want, but care may be required, particularly where you don’t intend to leave all beneficiaries in equal control of the company.

PaxAnimi^® has developed control structures to ensure that you can achieve the required outcome for wealth held in a family company (that does not act as trustee of a trust).

While wealth held in a family company is certainly dealt with as part of the PaxAnimi^® fixed price estate planning service, please remember that it will be dealt with as follows unless you make contrary arrangements with us including about cost:

• control of the company will pass equally to your intended beneficiaries (including after the death of their parents, equally to all of their children, if they have children), and;
  
  
• their decisions must be unanimous, and;
  
  
• there is an assumption that there is nothing in the constitution of the company that already provides for the passing of control.

The idea with this is that, while it may create an impasse in doing business, it stops the majority doing the wrong thing by the minority.

If you feel that this will not work for you and your beneficiaries, you must raise it with us.

This FAQ tells you how your family trust (that has a company as trustee of the trust) will be dealt with as part of the PaxAnimi^® fixed price estate planning service unless you make specific contrary arrangements including about cost.

If the family trust has a human as trustee, we use the same solution as with a company trustee but there is less control over the intended outcome happening and you are placing more trust in your executor and beneficiaries than when you have a company as trustee of the trust.

The comments in this FAQ apply to both a discretionary trust (non fixed trust) and a unit trust (a fixed trust).

The PaxAnimi^® fixed price estate planning service deals with wealth held in a family trust.

If a family trust holds part of your wealth, you will need to consider how to pass control of the trust when you die. Normally this can be done in the way you want, but care may be required, particularly where you don’t intend to leave all beneficiaries in equal control of the trust.

PaxAnimi^® has developed control structures to ensure that you can achieve the required outcome for wealth held in a family trust.

While wealth held in a family trust is certainly dealt with as part of the PaxAnimi^® fixed price estate planning service, please remember that it will be dealt with as follows unless you make contrary arrangements with us including about cost:

• control will pass equally to your intended beneficiaries (including after the death of their parents, equally to all of their children, if they have children), and;
• their decisions must be unanimous except the decision to wind up the trust which can be made by only 1 of them on 12 months' notice to the others of them if the capital is to be distributed equally between them, and;
• there is nothing in the trust deed of the trust that stops the trust deed from being changed to allow for this.

The idea with this is that, while it may create an impasse in doing business, it stops the majority doing the wrong thing by the minority.

If you feel that this will not work for you and your beneficiaries, you must raise it with us.

When a superannuation fund member dies, our superannuation laws require that their superannuation death benefits be paid to either:

• their superannuation dependants, or;
  
  
• their legal personal representative (that is, the executor of their estate),

but without something more, not necessarily in accordance with the intentions of the deceased member.

It is only when a deceased member’s death benefits are paid to their legal personal representative that their death benefits will form part of their estate.

A most commonly misunderstood issue about a deceased superannuation fund member’s benefits when they die is the interaction between the benefits, the deceased superannuation fund member’s will and their estate.

Superannuation benefits of a deceased superannuation fund member are not personal assets of the superannuation fund member. So unlike an interest in a family home for example that is held as tenants in common by a deceased person, their superannuation benefits do not automatically form part of their estate.

Therefore, without something more than a provision under the deceased superannuation fund member’s will saying “I give my death benefits equally to X and Y”, there is no certainty at all that X and Y will equally inherit the deceased member’s superannuation death benefits.

The question remains as to whether those death benefits will actually form part of the estate of the deceased member.

If a superannuation fund member wants to control the outcome as to:

• who their death benefits are paid to when they die;
• in what proportion they are paid, and;
• in what form they are paid,

assuming that the trust deed permits it, they will need to complete:

• either a binding but 3 year lapsing death benefits nomination in accordance with the formal statutory signing requirements of section 59(1A) and regulation 6.17A of the Superannuation (Industry) Supervision Act (SIS), or;
• a less formal but equally binding but non lapsing nomination to the trustee permitted by section 59(1) of SIS.

If they don’t do that, the trustee will normally be left with the discretion to decide whether the death benefits are paid to superannuation dependants of a deceased fund member and/or their legal personal representative, however that will be dependent on what is in the superannuation fund trust deed.

The ATO in SMSFD 2008/3 supports the view that a member of a SMSF can make a binding non lapsing but revocable death benefits nomination but only if the trust deed is appropriately drafted. The 2022 High Court case of Hill v Zuda unequivocally stated that the 3 year lapsing provisions of regulation 6.17A of SIS have no application to a SMSF and a non lapsing binding revocable death benefits nomination can be made if the trust deed permits for them to be made.

The PaxAnimi^® preference is for a nomination permitted by a section 59(1) nomination, as:

• it does not need to comply with the statutory witnessing formality, and;
• it does not need to be renewed every 3 years (ie it is non lapsing but revocable).

In each case:

• the trust deed must permit a binding death benefits nomination, and;
• it can only be in favour of:
  • a superannuation dependant, or;
  • the deceased superannuation fund member's legal personal representative. 

If the death benefits are paid to the deceased member’s estate (through the legal personal representative), the will of the deceased member can then determine who receives the death benefits, including a non superannuation dependant.

If the death benefits are intended for a non superannuation dependant, they:

• first must be paid to the legal personal representative of the deceased member, and;
• then the distribution of the death benefits to the non superannuation dependant can be controlled by a provision in the will.

CAUTION  Once paid to the legal personal representative, the death benefits form part of the estate of the deceased member and so are exposed to any challenge to the deceased member’s will and their estate.  If this may be a problem, further advice may be required about how to protect the death benefits and achieve the intended outcome.

If no consideration is given to this issue, it is quite possible that the trustee of the fund could pay the death benefits to:

• an unintended superannuation dependant of the deceased superannuation fund member (either in whole or in part) as in the case of Katz v Grossman [2005] NSWSC 934, or;
• the legal personal representative of the superannuation fund member, where if no specific provision is made under the will for the payment of the death benefits, they will form part of the rest of the estate and be distributed accordingly.

In summary, the answer to the question of how can you control who gets your death benefits when you die is:

• look at the SMSF trust deed to see what provision it makes for a section 59(1A) nomination or a nomination permitted by a section 59(1);
• if no provision is made, depending on the desired outcome, the SMSF trust deed may need to be updated;
• if the benefits are to pass to a non SIS dependant and the SMSF trust deed permits for either a section 59(1A) nomination or a nomination permitted by section 59(1) or both, a nomination will first need to be made that the death benefits be paid to the estate (through the legal personal representative) where the will can provide what happens next;
• if the benefits are to pass to a SIS dependant and the SMSF deed either permits for a section 59(1A) nomination or a nomination permitted by section 59(1) or both, a nomination can be completed directly in favour of the SIS dependant and the benefits do not need to form part of the estate (through the legal personal representative) at all.

If a section 59(1A) nomination is made, the superannuation fund member’s will only plays a role if the nomination is made in favour of the member’s legal personal representative, when the provisions of the will then determine who gets the superannuation fund member’s death benefits.

If a nomination permitted by section 59(1) is permitted under the SMSF trust deed, the superannuation fund member’s will could play 2 roles:

• the first is to make the nomination (but only if the trust deed specifically allows for that to happen including that it can be done via the member’s will), and;
  
  
• the second is to determine who gets those death benefits if they are paid to the legal personal representative of the deceased member.

If no nomination is made, a deceased member’s will only plays a role if the trustee decides to pay the death benefits to the deceased member’s legal personal representative.

Once paid to the legal personal representative:

• the benefits will be paid as specifically provided for under the will, or;
  
  
• if no specific provision is made, they will form part of the rest of the estate and be distributed accordingly.

If a member wants to leave their assets, including their superannuation death benefits among different beneficiaries (for example between a surviving spouse and children of the deceased from a prior relationship) particularly where it is intended that the superannuation death benefits are to form part of their estate, the member must:

• either leave a binding death benefits nomination, and/or;
  
  
• ensure that the executor is specifically authorised under the will to make a claim to the trustee of the superannuation fund for the superannuation death benefits to be paid:
  
  
  • personally to the executor (if that is what the deceased member wants), even where the executor is the deceased member’s spouse, or;
    
    
  • if the executor is the sole beneficiary of the estate or of the superannuation death benefits under the estate, to the legal personal representative (ie the executor), where they will form part of the estate and if the will provides, be paid to the executor.

Each of McIntosh v McIntosh [2014] QSC 99 & Brine v Carter [2015] SASC 205 highlight the fiduciary duty of an administrator or executor of an estate as a further reason why it is very important to have an effective and binding death benefits nomination.

The difference between the 2 cases is that in McIntosh, the deceased died without a will and in Brine, the deceased died with a will. In the end, the court in Brine has determined that the same principles apply in either the case of an administrator or an executor.

However, until Brine was decided, it was thought that an administrator of an estate had a higher duty to avoid any conflict of interest that arose from appointment as administrator of an estate than where an executor has been granted probate. See paragraph 62 of the McIntosh judgement.

In both cases, if the principles laid out by these single judge decisions are adhered to in later court decisions, without a contrary binding death benefits nomination or an authority to collect the death benefits personally despite the obvious conflict of interest, the superannuation death benefits may need to be collected by the administrator / executor for the benefit of the estate and not paid directly to dependants of the deceased member.

Just because you are a member of a superannuation fund does not mean that legally, you have to make a binding death benefits nomination. It is your right to choose whether you do or you do not have a binding death benefits nomination.

However, at the very least, you should consider whether what you want to happen with your death benefits will happen without you having left a binding death benefits nomination.

The case of Katz v Grossman [2005] NSWSC 934 highlights the need for superannuation fund members of a SMSF to:

• either have left a binding nomination as to how they want their death benefits to be paid on their death;
  
  

• or to have considered it but have total trust that the surviving trustees of the superannuation fund 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 and superannuation law permitted the surviving daughter to appoint her husband as her co-trustee of the fund;
  
  
• as trustee and as there was no binding nomination about the payment of Mr Katz’s death benefits, the daughter and her husband then applied 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 binding nomination, one can be made:

• either under section 59(1A)/regulation 6.17A of SIS by way of a 3 year lapsing nomination;
  
  
• or in the case of a SMSF, as a revocable non lapsing nomination permitted by section 59(1) of SIS.

A section 59(1A)/regulation 6.17A nomination must comply with the statutory signing requirements including being witnessed by 2 adult witnesses and it only lasts for 3 years, when it must be renewed if the intended outcome with the death benefits is to continue.

A nomination permitted by section 59(1) only needs to comply with the terms of the trust deed and can last indefinitely.

The ATO in SMSFD 2008/3 supports the view that a member of an SMSF can make a revocable non lapsing binding death benefits nomination but only if the trust deed specifically allows it.   The 2022 High Court case of Hill v Zuda unequivocally stated that the 3 year lapsing provisions of regulation 6.17A of SIS have no application to a SMSF and a non lapsing binding revocable death benefits nomination can be made if the trust deed permits for them to be made.

The PaxAnimi^® view is that a nomination permitted by section 59(1) is preferable for a SMSF, as:

• it requires less formality, and;
  
  
• because it does not have a 3 year limited life.

However, the trust deed must specifically permit for it to happen.

If it does, the trust deed will spell out that a member of the fund can make a written nomination (and any form in which it can or must be made, but specifying the form is not an essential element for a trust deed to allow for a binding death benefits nomination).

If the trust deed specifically permits, the section 59(1) nomination can be made under the member’s will.

Even though, in that case, a nomination can be made by a will, technically, death benefits do not form part of the personal assets of a deceased superannuation fund member, like say an interest in a family home would if that interest is held as tenants in common, unless they are paid to the legal personal representative and they then form part of the estate.

If the SMSF trust deed permits, in the case of a nomination permitted by section 59(1), the will just happens to be a means of:

• both making a nomination, and;
  
  
• ensuring who gets the death benefits after the death benefits have been paid as provided by the nomination.

Non SMSF’s are different as they have independent trustees to administer them. If superannuation is held in a non SMSF and a member wants their superannuation to be paid in a particular way, they should carefully consider this issue about whether they should or should not leave a binding death benefits nomination because in the case of a non SMSF, there is less likelihood that their wishes will happen without a binding nomination.

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 dependant, or;
  
  
• the legal personal representatives of the deceased superannuation fund member.

So being the trustee of the fund can be a very important role particularly in a SMSF where the trustees are not normally independent.

In a SMSF, if you don’t 100% trust your co-trustees / your co-directors, you may need to give some serious thought to this.

If a fund trustee pays death benefits to the legal personal representative of a deceased superannuation fund member under the superannuation laws, those benefits will typically form part of the rest of the estate and be distributed accordingly, unless of course specific provision has been made for them under the will once they have been paid to the estate.

However, without a binding nomination in favour of the legal personal representative, they cannot be specifically gifted under the will unless the trustee in exercising the trustee’s discretion happens to cause them to be paid to the deceased member’s legal personal representative when they form part of the estate.

Remember, even if you do have a binding death benefits nomination in place, contracts were made to be broken.  Sometimes, there can be no guarantee that what you want to happen when you die will happen.  So, if you are making a binding death benefits nomination because you don’t think that what you want to happen will happen without it and you cannot 100% trust those who will be in control of the payment of the death benefits after you die, you should reconsider your plans and get expert advice.

The PaxAnimi^® view is that members of a SMSF only need to leave a binding death benefits nomination if they cannot be certain that their death benefits will pass in the way that they want them to pass if they don’t leave one.

Just as a nomination may be desirable in getting certainty in the passing of death benefits, not having a nomination may not be fatal in a husband and wife fund for example, where:

• there are children and some are under 18 or otherwise dependant on the member (including financially) and some are not, and;
  
  
• the family relationships are harmonious, and;
  
  
• all members of the family can be trusted to work together in reaching the desired after tax outcome.

In an appropriately structured will and given a harmonious family unit, the absence of a nomination can actually leave the family with greater flexibility in managing the tax effective passing of wealth on death.

It must be kept in mind that once made and unless revoked, a nomination may not take into account the changing circumstances of the member.

Therefore, not only should they never be made in isolation from the estate plan and only then with care, they should be constantly reviewed.

A nomination can be used to ensure that the death benefits pass in the way the deceased member wants.

A non exhaustive list of situations in which a binding death benefits nomination might be appropriate is:

• At any time if the member can’t be assured of a fair outcome without it.
• If the fund consists of more than a husband and wife, a nomination ensures that the death benefits end up where the deceased wants them to go without the need to get trustee consensus.
• In a husband and wife fund where there is a lack of trust between them.
• Where provision is to be made for children when both spouses die, particularly:
  
  
  • In a blended family, or;
  • Where not all children are trustees and relationships between children are not harmonious.
    
    
• Where unequal provision is to be made and death benefits are to be used to do it and particularly where not all of the recipients are trustees of the fund.
• Where someone other than a superannuation dependent is to benefit, although here, the death benefits will first need to be paid to the legal personal representative of the deceased member and the will must make the gift of those benefits.
• If there are tax dependent and non tax dependent children, the nomination can also be used to ensure that the benefits pass not only fairly but tax effectively.

If equality is to be reached after giving tax dependent children the death benefits, a clause that leaves a legacy to non tax dependant children can cope with the different tax treatment of the payment of death benefits to tax dependants and non tax dependants.  This mechanism not only ensures equality but can avoid stamp duty problems in otherwise trying to get equality outside the terms of the will.  However, if the legacy is to work properly, there must be sufficient other personally owned assets of the deceased member to balance up paying the death benefits to the tax dependent children.

• The superannuation benefits are held by a non SMSF. Non SMSF’s are different to SMSFs as they have independent trustees to administer them.  If superannuation is held in a non SMSF and a member wants their superannuation to be paid in a particular way, they should carefully consider this issue about whether they should or should not leave a binding death benefits nomination because in the case of a non SMSF, there is less likelihood that their wishes will happen without a binding nomination.

Of course the fund's trust deed could leave the trustee enough discretion as to how the death benefits can be paid and assuming the surviving trustee does what the deceased would want and does it tax effectively, the same result can be achieved without a nomination.  This may still require an equality mechanism under the will.

In using a binding death benefits nomination, make sure that:

• your SMSF trust deed permits a binding nomination to be made;
  
  
• you comply with the terms of the trust deed and the superannuation law in making the binding nomination;
  
  
• the binding nomination aligns with what you want to do in passing your wealth on your death, including under your will including the tax effect of how the superannuation benefits are paid;
  
  
• you consider using a provision in the will that ensures after tax equality between those who do and don’t receive death benefits (including for tax reasons);
  
  
• you constantly review it for its currency;

If there are tax dependant and non tax dependant children, a nomination can also be used to ensure that the benefits pass not only fairly but tax effectively.

Note If equality is to be reached, a clause in the will that leaves a legacy to non tax dependant children can cope with the different tax treatment of the payment of death benefits to tax dependants and non tax dependants.

This mechanism not only ensures equality but can avoid stamp duty problems in otherwise trying to get equality outside the terms of the will.

There must be enough personal assets for this mechanism to work properly.

An effective legacy for equality clause could even have dealt with the unexpected outcome that arose in the Katz v Grossman case, but remember, only if there are enough assets with which to achieve the outcome you want.

Where:

• unequal provision is to be made from a member’s wealth to their intended beneficiaries and death benefits are to be used to do it (particularly where not all of the recipients are trustees of the fund), or;
  
  
• someone other than a superannuation dependant is to get the death benefits:
  
  
  • the death benefits will first need to be paid to the legal personal representative of the deceased superannuation fund member, and;
    
    
  • the will must then make the gift of those benefits to the non superannuation dependant.

Of course the fund's trust deed could leave the trustee enough discretion as to how the death benefits can be paid and assuming the surviving trustee does what the deceased would want and does it tax effectively, the same result can be achieved without a binding nomination.

This may still require a mechanism under the will to ensure that equality can be reached using other personal assets of the member to even things up.

If you are not ready to make a binding death benefits nomination but you want some protection about what happens to your superannuation death benefits when you die, you should consider a guardianship provision for the SMSF trust deed.

If the SMSF trust deed permits it to happen, a person with the power to veto a death benefits payment can be appointed by the member. We call them a guardian.

That person would of course have to have the complete trust of the deceased member.

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