“It's not enough for the accountant to tell you as the auditor, ‘Oh no, that's okay. We know who it should go to’,” Schaefer said at the SMSF Association Audit Day.

“There needs to be documentation in place to show that the trustees of the fund have considered the various elements. Is there a will? Is there a binding death benefit nomination? Is there nothing in place? Have we got sole trustee discretion? At the very least, there should be a minute or a resolution documenting who are the likely beneficiaries and to whom those monies have been paid.”

She pointed to an increasing number of court cases arising from disputes over binding death nominations, which highlights the importance of doing things correctly.

“Invariably, a binding death benefit nomination can be completed by the deceased before their death to provide that level of dictate, but for it to be binding on the trustees, it needs to be valid,” she said.

“There are two elements to this. The first one is what does the deed say? Read the deed. Have the relevant processes and procedures been followed? Again, a generic trust deed is not likely to cause too much trouble, but if the deed is older, there may be some very specific circumstances.”

The second thing that must be ascertained is whether the nomination is valid and whether the beneficiary is a superannuation dependant.

“In my time, I have seen binding death benefit nominations made out to nephews and nieces, and that's great. It's nice that if the individual doesn't have children, they leave their money to their family, but a nephew or a niece is not a superannuation dependant, and it cannot be paid directly from the fund to those individuals,” she said.

“There's no reason they can't get that money, but it needs to go into the estate first, and then it needs to be dealt with in accordance with the will.”

She added that a common misconception about death benefits is the assumption that the deceased’s superannuation will be distributed according to their will.

“But that's only the case if it gets to the estate in the first place or gets into the will to be considered as assets to be distributed. So it is important that we have a binding or a valid nomination and it needs to name a superannuation dependant,” she said.

It is crucial that an auditor also ensures that the nomination has been executed properly.

“A common problem with documents is that people do not sign them or date them or witness them as is required, which makes the document invalid. And let's face it, while 96 per cent of death benefits will probably go where they're supposed to, it's that 4 per cent that wind up in the Supreme Court and then any full stop or comma out of place can cause trouble,” Schaefer said.

She said it is important to consider whether the nomination is lapsing or non-lapsing or contradicts any reversionary pension instructions.

“Accountants often try to deal with this in isolation, but I think it's critical when somebody is doing their estate planning that they look at this from a holistic point of view, and the lawyers consider superannuation and estates and trusts and make sure that everything lines up and that it all agrees.”

“That's not our job as auditors, but it is something we can provide support to our clients if needed, in terms of encouraging them to make sure they don't try and cut corners with the self-help, off-the-internet, binding death benefit nomination form.”