What Happens When Both Members of a SMSF Die At The Same Time?

Say your clients are husband and wife members of a two member self-managed superannuation fund. Each of them has retired and is receiving an account based pension in the SMSF, and they have nominated each other as their reversionary beneficiary. They also each have in place a Binding Death Benefit Nomination that nominates the legal personal representative of their own deceased estate.

What happens in the event that both the pensioner and the reversionary beneficiary die simultaneously in circumstances in which it is unclear who died first? Does the reversionary nomination under the pension take precedence over the BDBN, or vice versa – and does it matter in any event if both have died at the same time?

Well, to answer the last part of the question first, it certainly can matter, particularly if their respective Wills are very different from each other in terms of whom they wish to benefit from their personal estates (such as in a “blended family” situation, where their Wills may be dedicated to looking after each Willmaker’s own children from a previous relationship).

For example, suppose that:

• George and Marsha are married, but this is their second marriage – George has 3 boys from a previous marriage, whilst Marsha has 3 girls from a previous marriage.
• George is 5 years older than Marsha, but Marsha has a health condition which on the face of it would make it likely that George will survive her, other things being equal.
• Each of them wants to look after the survivor of them after they die, and super (via nominating each other as their reversionary pensioner) is the most convenient and tax-effective way to do this.
• Each of them believes that this is sufficient to look after each other by making the other a reversionary beneficiary of their super pension, leaving them free to decide how to use their own personal estates to look after their own respective children under their own Wills.
• In the meantime, they also each have in place a non-lapsing Binding Death Benefit Nomination that nominates the legal personal representative of their own deceased estate, which they have not reviewed and on the face of it conflicts with the reversionary pensioner nomination.

If the unthinkable happens and both of them pass away at the same time, the possibilities might include:

1. George is taken to die first as the elder of the two, so that:
   
   (a)    his pension is taken to revert to Marsha, giving her the balance of his pension account; and
   
   (b)    Marsha’s BDBN operates in relation to both her own super account and the account representing
           the balance of George’s pension, so the entire combined balance of the SMSF ends up going
           to Marsha’s estate to be dealt with under her Will for the benefit of her 3 girls, and none of it
           goes towards George’s boys.
   
   
2. Or, if Marsha is taken to die first, it all goes the other way and the entire combined balance of the SMSF ends up going to George’s estate to be dealt with under his Will for the benefit of his 3 boys, and none of it goes towards Marsha’s girls.
   
   
3. Or, maybe their respective BDBNs take precedence and their own respective super death benefits go to their own estates for the benefit of their own children.

Which is the correct outcome – or is there yet another alternative?

There are a number of considerations that can affect the outcome:

• Which nomination takes precedence – the reversionary pension nomination or the apparently conflicting BDBN – largely depends on what the trust deed for the SMSF says. This is because the interest in the SMSF is an interest in a trust, which is governed primarily by the trust deed. If the trust deed says that the BDBN takes precedence over the reversionary nomination, then that is what happens – or if it says the other way around, then again that is what happens. If, however, the trust deed is silent on the issue, then arguably the reversionary nomination would take precedence as the pension would upon the death of the original pensioner simply continue to be paid to the reversionary pensioner without ceasing, so that it never actually becomes subject to the operation of the BDBN.

• As to which of the two members is taken to have died first in the eyes of the law, the result depends on the laws of the State or Territory in which they were domiciled (namely where they were a lawful permanent resident - as opposed to the place where they actually died). In most States where two or more persons have died in circumstances rendering it uncertain which of them survived the other or others, the deaths shall (in some cases subject to any order of the Court), for all purposes affecting the title to property, be presumed to have occurred in order of seniority, and accordingly the younger person is deemed to have survived the elder person (see s 35 Conveyancing Act 1919 in NSW, s 184 Property Law Act 1958 in Vic, s 65 Succession Act 1981 in Qld, and s 2 Presumption of Survivorship Act 1921 in Tas). In others arguably it is less clear (e.g. s 120 Property Law Act 1969 in WA, or s 49P Administration and Probate Act 1929 in the ACT).

• The actual wording of the BDBN may also be relevant. For instance, if the nomination under the BDBN is subject to the nominee surviving the member by 30 days, then if both persons have died at the same time (or at least within 30 days of each other) the BDBN in favour of the nominee will clearly not apply, meaning that either the BDBN may operate in favour of any secondary nominee (in case of a cascading BDBN) or the BDBN may be ineffective – so that the trustee’s discretion will apply.
  
  

At the end of the day, the correct outcome is the one that your clients and their intended beneficiaries want and expect to happen. Therefore, best practice requires that you as their adviser should:

1. Talk about the issue with your clients – ask them what they want to happen to their super death benefits if (heaven forbid!) they both jump out of a plane together with the one parachute and it doesn’t open. Whilst it’s not an easy subject to broach at the best of times, usually a bit of sensitivity when raising the issue helps (and, perhaps counterintuitively, a little humour as well!);
   
   
2. Check the SMSF trust deed to see what (if anything) it says about the issue, and the priority of a reversionary pension nomination over a BDBN or vice versa – and seek legal assistance if it doesn’t say the right things;
   
   
3. In preparing the client’s reversionary pension nomination and / or their BDBN, insert a requirement that the nominee must survive the member by 30 days, to avoid any legal uncertainty that might arise out of the application of the legal rules regarding any presumptions as to order of deaths where there is any uncertainty; and
   
   
4. Make sure that your clients each have in place an up-to-date Will that works in conjunction with their respective superannuation nominations.

Visit the SUPERCentral product range if you would like more information on an account based pension, estate planning or binding death benefit nominations.

For further information call our office on 02 8296 6266 or email info@supercentral.com.au.