SMSF trustees should not use superannuation law to guide the implementation of binding death benefit nominations (BDBN) as it does not apply in those cases, an SMSF technical expert has claimed.
LightYear Group chief executive Grant Abbott said BDBNs were initially built for use by retail and industry superannuation funds where a trustee had discretion on where and how to pay a deceased member’s superannuation benefits.
“Section 59.1A of the Superannuation Industry (Supervision) (SIS) Act has provisions for BDBNs which are a contract between the trustee of a fund and a member as to how benefits will be paid,” Abbott said in a webinar today.
“A trustee cannot give that discretion away, but section 59.1A states that can happen under a BDBN and that is also reflected in SIS Regulations 6.17A.
“This overcomes any issues around discretion that was inherent for a trustee as to the payment of deceased member benefits in a retail or industry super fund.
“Where do SMSFs sit then? If you look at section 59.1A, it creates an exclusion in relation to SMSFs and the whole concept of a BDBN in superannuation law excludes SMSFs.”
He pointed out that while this position has been confirmed by the ATO, and trustees were bound by the nomination, the regulator also stated the SIS Regulations did influence who could be nominated as a person who can receive a benefit.
The ATO commissioner had taken that position in Self Managed Superannuation Funds Determination 2008/3 and SMSF trust deeds that had language that stated nominations were subject to super laws were incorrect, he said.
“In the deeds I see and review, and that some advisers may be sitting on, they state that any death benefit nomination made must be in accordance with superannuation laws,” he said.
“The problem is there are no laws that relate to it and your death benefit nominations need to have their own provisions.”
He warned advisers to carefully consider the use of trust deeds and where they were sourced from, and to ensure they did not make statements about benefits being paid in line with super laws.
“Where that language is present is a problem as it is not 100 per cent clear and I would prefer to see provisions that were clearer and had more ‘oomph’ than that,” he said.
