SMSF members who are forced to give a binding death benefit nomination (BDBN) to their trustee should consider changing the fund’s deed to remove that prescription as it is not mandatory, according to an SMSF legal expert.
DBA Lawyers special counsel Bryce Figot said the concept of having to ‘give a BDBN’ as prescribed in the Superannuation Industry (Supervision) (SIS) Regulations was problematic, but SMSFs were not bound by those rules.
Figot pointed to the case of Hill v Zuda Pty Ltd (2022) HCA21, which ruled the SIS Regulations about a BDBN being given did not apply to SMSFs despite many of them containing provisions for that action.
“In the SIS Regulations, which you don’t have to follow, it’s only if the deeds opt you into it, and a lot of deeds that require a BDBN to be given, or maybe something even more onerous such as given to trustee’s satisfaction or given in a particular form, are just inviting technical, formal disputes,” he noted during a recent online briefing.
“It does not have to be given and you could keep it a secret document, like a will.
“The BDBN should be the same, especially if I say in my BDBN I want the money not to go to my co-trustee, who, say, is my wife.
“What if I say I want the money to go to my kids from a previous relationship? If I had to give that to my co-trustee, that’d be really awkward.”
He suggested that if the provision of having to give a BDBN in an SMSF trust deed was unsuitable, it should be changed.
“Have a different deed. You want to check to make sure that the deed does not require give, because given is a nightmare,” he said.
“Why? Because after the Hill v Zuda case, we can say as an absolute fact that it is unnecessary and it gives rise to these types of disputes, and why would you want them?”
He added that not having to give a BDBN was also useful in cases where someone wished for it to override a pension.
“Say you got mum and dad, and mum says ‘when I die, my pension reverts to dad’ and dad says ‘when I die, my pension reverts to mum’, and they separate but haven’t divorced yet, and they don’t want their pensions to revert to each other,” he said.
“[To avoid this] just make a brand new BDBN.
“I have had this happen where I got a phone call on Monday morning. ‘We’re separating, we decided over the weekend, so I want a new BDBN to make sure my super doesn’t go to my ex.
“With given you might have to give that information to the trustee or it might be overridden by the pension documents, and changing pension docs is a lot harder than changing a BDBN.”