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Is your Binding Death Benefit Nomination (BDBN) valid?

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Is your Binding Death Benefit Nomination (BDBN) valid?

“Many SMSF members who mistakenly believe their BDBN is secure will have that complacency exposed after their death when their BDBN is rendered invalid,” says Daniel Butler and William Fettes in their article on SMSFAdviser.

It’s a scary thought, but one that all SMSF trustees should be aware of to ensure that there estate planning needs are best met.

But firstly, what is a BDBN? “A BDBN is a direction by a member to the superannuation fund trustee requiring the trustee to pay the member’s death benefit to the member’s dependant(s) or their legal personal representative (‘LPR’) (ie, the executor/executrix)”. Whilst this sounds complex, two important things to note from this is firstly ensuring you nominate a dependant as defined under the Superannuation Industry (Supervision) Act 1993 as opposed to a dependant defined under the Tax Act. Secondly, using “Legal Personal Representative” or “LPR” should you wish for your superannuation death benefit to be distributed by the executor of your will or administrator of your estate.

Along with this, the article highlights the importance of having a good SMSF trust deed by noting “SMSF deeds are not a generic product and many SMSF deeds are unsatisfactory”. This is something here at Self Managed Super Institute we particularly notice with clients who haven’t updated their deed in the last 2-3 years. If you haven’t already done so, it’s probably a good idea to check yours and see if your SMSF could do with a deed update.

Whilst this may all seem a bit daunting, Butler & Fettes provide a starting point for SMSF trustees, by highlighting the following risk areas that could prevent you from having a valid BDBN:

– Expiry of the nomination due to the 3-year sunset rule under reg 6.17A of SISR.
– Failure due to sloppy wording such as ‘the nomination is only binding if it’s to the trustee’s satisfaction’.
– Problems with the prior deed history where one or more variations were not properly completed rendering subsequent deeds, and any BDBNs purportedly made on the latest deed, invalid.
– Failure due to poor wording such as in Munro v Munro where the wording of the BDBN, while close, was not good enough. The BDBN was only valid if the exact words under the deed were used.
– Failure due to conflicting wording in the SMSF deed compared to what was in the reversionary nominations, wills and EPoAs (Enduring Power of Attorneys).

By | 2017-07-07T12:16:44+00:00 June 22nd, 2015|Uncategorized|