BDBN formalities best kept simple

An SMSF lawyer has suggested it is best practice to keep any rules governing the validity of binding death benefit nominations (BDBN) in a fund’s trust deed as simple as possible to avoid potential court challenges from aggrieved beneficiaries.

Speaking at this year’s Chartered Accountants Australia and New Zealand National SMSF Conference in Melbourne, DBA Lawyers special counsel Bryce Figot noted an SMSF trust deed should avoid stipulating the need for a BDBN to be given to the fund trustees or in a specific form.

“Those are the things that tend to get challenged – was it given to the trustee and was it in the right form. You do not want a deed that says that, yet there are a heck of a lot of deeds that say that,” Figot said.

“Instead, we want to have trust deeds that say so long as the BDBN is in writing and it is adequately clear, that’s enough for it to be sufficient.”

He pointed out the question of how a trustee is supposed to know about an existing BDBN without seeing it is not reason enough to include the aforementioned troublesome clauses in an SMSF trust deed.

“Similarly, how is anyone supposed to know you’ve made a will? Leave it in a sensible spot so it does get found. Your will is a private document until you die and it gets probate,” he noted.

“The BDBN should be the same.

“Now in the world of APRA (Australian Prudential Regulation Authority) funds, they have administrative reasons why they would want those provisions, but they are just going to cause you problems in the world of SMSFs.

“You want to have a deed that says the BDBN is valid regardless of whether or not it was given to the trustee.”

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