SMSF members wanting to finalise decisions in regards to death benefits inside a fund have been advised binding death benefit nominations (BDBN) are not the only viable option and are open to challenge if poorly constructed.
Speaking during a presentation at the recent ASF Audits Technical Seminar 2021, Cooper Grace Ward Lawyers partner Scott Hay-Bartlem said BDBNs were usually the preferred option for death benefits, but they were not the only solution available to SMSF members.
“There’s a range of other tools that we have to lock in decisions. We can do a binding nomination, we can revert a pension, [we can include] specific deed provisions and talk about death benefit guardians,” Hay-Bartlem said.
“One of my personal favourites is to have separate SMSFs. The fact you’re married to somebody or somehow vaguely related to somebody doesn’t mean you all have to be in the same super fund,” he added, noting this ran counter to the comments around the creation of six-member funds.
“Six-member funds are exciting, but the amount of complexity in a fund is in direct proportion to the number of people in the fund and it’s not a linear increase either.”
He warned any death benefit arrangement, particularly BDBNs, that has been completed without the guidance of a legal representative could be vulnerable to challenges in the future.
BDBNs were a “creature of the trust deed” and need to be created from the perspective of a lawyer seeking to pull the nomination apart, he said.
“In a dispute a lawyer will blowtorch that deed and blowtorch your binding death benefit nomination,” he said.
“It’s all in the deed and you have to think like a lawyer. Now, I know that’s a bit of an unpleasant experience and I accept that lawyers think differently to normal people, but you always need to read it like a lawyer.”