When it comes to the requirements for binding death benefit
nominations (BDBNs) in the context of self managed superannuation
funds (SMSFs), the provisions of the trust deed are paramount. Many
advisors don't realise that the provisions of the
Superannuation Industry (Supervision) Act 1993 have no
bearing on the process for making binding death benefit nominations
and that all of the answers lie in the trust deed itself.
Common errors or issues that can affect the validity of BDBNs
The process specified in the trust deed is not correctly
followed, for example:
An approved form of BDBN (often annexed to a Schedule in the
trust deed) is not adopted
The Trustee's approval or acknowledgement is required but
not obtained or no evidence of such can be shown
A requirement to provide certain information to members before
they are able to make a BDBN is not followed
The BDBN nominates a beneficiary who is not an eligible
beneficiary, that is, the beneficiary is not within the prescribed
group of eligible recipients of superannuation death benefits at
law, for example, the beneficiary is a spouse, child, financial
dependent, person in an interdependency relationship or legal
representative of the deceased member.
The entirety of member benefits are not dealt with in the BDBN.
This issue may occur where the trust deed only allows a BDBN to
deal with benefits in an accumulation account and so amounts in a
pension account may not be covered by the terms of a BDBN.
There may be a Reversionary Pension in place with an
inconsistent BDBN. So which document takes priority? A properly set
up reversion will be automatic, meaning that there will be no death
benefit for a trustee to make a decision about, and a well drafted
trust deed will prescribe whether a Reversionary Pension or BDBN
will come up trumps. However, often deeds are silent or ambiguous
on this issue and so uncertainties arise.
So what can advisors do to minimise the risk of BDBNS being
invalid? Read the deed for starters! Given that the majority of
challenges come from basic non-compliances with the procedures set
out in the trust deed means that a lot of members, and often their
advisors, are not reading the deed.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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