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Documentation, Succession Planning

Succession conflict resolution critical for deeds

Referree blowing a whistle

SMSF trust deeds must have the ability to resolve conflicts between different types of succession planning measures.

A specialist legal firm has warned SMSF trust deeds must contain resolutions for potential conflicts that may arise when a member passes away.

During a recent webinar for practitioners, DBA Lawyers senior associate William Fettes said SMSF trust deeds had to have the ability to resolve specific situations, such as when a binding death benefit nomination (BDBN) is in conflict with a pension nomination.

“What happens if there’s a conflict between a binding death benefit nomination and a nomination document in respect of a pension? [In these situations] it’s going to be critical to look at the deed and not just the current deed, but the whole document trail for the fund,” Fettes said.

“Our experience is there are plenty of deeds out there that provide no guidance or very ambiguous guidance about what’s to happen in the event of conflict and so we could be talking about the trustee being left in a very uncertain position [regarding] solving that conflict.

“Quality trust deeds need to resolve that conflict. If you’ve got a current deed from a provider and it has no way of resolving that conflict, watch out, particularly when you’ve got clients with pensions and binding death benefit nominations in place.”

According to Fettes, many of these types of conflicts arise because BDBNs and pension nominations are usually formulated at different times.

Further, he stressed there are no hard and fast rules as to how these conflicts should be resolved.

However, he did point out DBA Lawyers preferred to give BDBNs priority over pension nominations as a rule, noting there were some identifiable advantages in doing so.

“When an SMSF member is revising their succession plan, they often revisit their BDBN possibly more so than their pension documents. That’s probably a fair generalisation,” he said.

“They’re probably giving greater consideration to their overall wishes when they [execute] that type of document.

“Certainly they might be giving greater consideration [to their overall wishes] than when they simply retire and commence a pension, for example, where they’ve filled out a reversionary nomination by ticking a box in the pension commencement document.”

Giving a BDBN priority over pension nominations will also provide greater clarity should the deceased SMSF member have multiple pensions, he said.

“However, I will reiterate there are no hard and fast rules and do make sure your deed has a conflict power to resolve these issues and make sure the clients document pensions and nominations and make sure they are consistent because when they are not consistent, things could go pear-shaped,” he said.

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