A fixed model for setting the priority of binding death benefit nominations (BDBN) and reversionary pensions was unlikely to find common ground in the SMSF sector, according to an estate planning legal specialist.
Rather, SMSF advisers and trustees should be more aware of how they work and the potential for disputes if used incorrectly in a fund and as part of an estate, Cooper Grace Ward partner Scott Hay-Bartlem said.
Speaking with selfmanagedsuper, Hay-Bartlem agreed it would be helpful to have a standard approach in trust deeds as to how BDBNs and reversionary pensions (RP) interacted with each other when both were present, but this was currently unlikely.
“If something was put in place, it would be helpful and would make conflicting matters clear, but I don’t think the industry would agree on the issue of priority because there are two different schools of thought about which one should have priority.”
He said the reason for these differing approaches was the result of ongoing changes in the SMSF and wider superannuation sector.
“BDBNs were important pre-2007 because there was a tax impact, but with the Simpler Super reforms they have mattered less and people lost interest in them for a while.
“At the same time we have an interesting problem with RPs as there is not much actual legislation about them. There is not that much in the Superannuation Industry (Supervision) Act 1993 about how they work, what they need to do and do they have priority over a BDBN, and it would be nice to have more structure and rules around them.”
He added that not enough people were realising any decision around the use of a BNDN or RP was also an estate planning issue.
“A lot of superannuation decisions are estate planning decisions, and vice versa, so they have to be considered together, which is why we have inconsistent BDBN and RP arrangements because people forget they have one or do not understand what they already have,” he said.
“People make a BDBN without being aware of the consequences and forgetting they have also done something else, such as a binding nomination to the estate and a RP to the spouse, and the question is which did they really want.
“The good thing about the superannuation system is that it gives consumers lots of choice about how to deal with death-related matters, but estate planning with superannuation is either not done properly or at all.
“So we still see lots of people having fights about whether old trust deeds were done properly or who the trustee is and if the BDBN complies with their super fund deed.”