Trustees should ensure their binding death benefit nominations (BDBN) address concerns specific to their SMSF in order to avoid potential issues, an SMSF expert has said.
SuperConcepts SMSF technical and private wealth executive manager Graeme Colley said trustees who did not factor in the legal competency of fund members and the make-up of their SMSF when setting up BDBNs might encounter problems in the future.
In a blog post on the AMP Capital website, Colley highlighted the importance of considering whether a trustee of an SMSF would have the legal competency to act in the interests of a deceased member.
Trustees should reflect on who might take over the running of the fund in the event of them being unable to act in that capacity, he added.
“To cater for this situation, the trust deed of the fund or constitution of the corporate trustee should provide an alternative if the trustee or director of the corporate trustee becomes legally incompetent due to disability,” he said.
“Another option could be for the trustee to grant an enduring power of attorney to another person who could take over when they are unable to act.
“Being prepared when a trustee is unable to act by using an enduring power of attorney may allow an SMSF to continue in difficult times.”
He also pointed to the specific make-up of the SMSF as another important factor for trustees to consider when setting up BDBNs.
“SMSFs operate in a unique way and may have investments which can be retained in the fund or transferred to the beneficiary as part of the payment of a death benefit,” he noted.
“It is possible for a binding death benefit nomination to direct particular assets to one or more beneficiary.
“Consideration needs to be taken of the fund’s assets in satisfaction of the payment of a death benefit. This may involve taxation issues, including income tax and stamp duty in relation to the transfer.”
