A specialist document provider has suggested a determination as to whether a binding death benefit nomination (BDBN) trumps a reversionary pension upon an SMSF member’s passing may not be necessary as the two estate planning tools can co-exist without conflict.
To this end SuperCentral noted in some situations a BDBN may be explicitly excluded from applying to a reversionary pension interest thus eliminating any conflicting estate planning instructions.
In addition the documentation specialist indicated sometimes no conflict between a BDBN and a reversionary pension will materialise because the reversionary beneficiary may have predeceased the member without being replaced rendering the pension non-reversionary.
However SuperCentral did acknowledge there will be occasions where a conflict exists between an inconsistent BDBN and a reversionary pension and in these instances the document provider said it favoured the reversionary pension.
“If the pension automatically transfers on the death of the member, the pension has ceased to be a superannuation interest of the member, and so the member’s binding death benefit nomination cannot apply,” it explained.
To clarify its interpretation of the situation SuperCentral used the analogy of how a property held in joint tenancy would be treated if one of the joint tenants died. It argued here ownership of the property would automatically transfer to the surviving joint tenant without the need for the asset to form part of the deceased party’s estate.
As a rule SuperCentral advised whichever course of action is taken upon the death of a member both measures need to be executed in conjunction with the individual’s estate plan to ensure consistency and effectiveness.
“A binding death benefit nomination which is inconsistent with the estate planning of the member would be just as bad as reversionary pension which is inconsistent with the estate planning of the member,” the document provider said.
“To try to pick one as being worse than the other is to miss the essential point: they each should be part of and consistent with the estate planning of the member,” it concluded.
Other segments of the SMSF sector have also supported the position that reversionary pensions trump BDBNs in situation of conflict.