The rules around death benefits inside superannuation, particularly SMSF’s, are very complex and therefore it is vital to have clear and effective legal documents. A recent article by Daniel Butler in The Australian Financial Review reviews this topic by examining whether an Automatically Reversionary Pension (ARP) or a Binding Death Benefit Nomination (BDBN) is ultimately better for ensuring your death benefit is best distributed to your intended beneficiaries.
As mentioned in our previous article Is your Binding Death Benefit Nomination valid?, it is important to ensure whatever estate planning documents you have are consistent with your trust deed. Butler highlights this by noting that most deeds “do not have a binding ARP” and therefore a BDBN is more effective as it binds the trustee. Having an ARP that is not binding is a mere wish and the trustee ultimately retains discretion. Importantly, an ARP or BDBN are both possible provided the fund deed empowers them.
Another consideration to make when looking at your estate planning, is determining if you wish to have your death benefit distributed to a dependant or not. The article refers to Webb v Teeling
Ultimately, what this post should highlight is that estate planning inside an SMSF is very complex and careful consideration must be taken by members of an SMSF to prevent costly legal battles arising that result in your death benefit ending up in the wrong hands.