The failure to comply with formalities when exercising the discretion associated with executing a binding death benefit nomination (BDBN) is the most likely avenue of challenge against these SMSF estate planning instruments, according to a specialist superannuation lawyer.
“[This is where] the discretion has to be exercised in a particular manner and it hasn’t been,” Townsends Business and Corporate Lawyers special counsel Michael Hallinan told a SPAA Sydney Chapter breakfast last week.
Hallinan said perceived failure to exercise discretion properly could occur in several different ways.
“It could be that the nomination has to be delivered to the trustees and it hasn’t been delivered to the trustees,” he said.
“It could be that the nomination has to be witnessed in a certain manner and it hasn’t been witnessed in that required manner.
“Or [it could be] that the nomination is required to be dated and signed and it hasn’t been dated or signed or there is doubt as to whether it has been dated and signed.”
The process of complying with the formalities could be more complicated than would appear at face value, he said.
He used the requirement to have the BDBN in writing as an example and specifically a situation where the BDBN instruction was communicated to the trustees via email.
“Would that be sufficient? Would an email itself be ‘in writing’?” he said.
“Well the intelligent answer is you don’t test that because you don’t go down that route.
“Would it be different if the form had been signed and scanned and attached as a PDF to the email and then sent to the trustees?
“I suppose there would be stronger grounds there because you’ve actually attached a scanned document and the document is obviously the nomination.”
The above situations showed how some of the perceived simple procedures associated with BDBNs could give rise to very complicated outcomes that could be used as grounds to attack that type of estate planning instrument, he said.