SMSF trustees seeking to use alternatives to binding death benefit nomination (BDBN) in super need to ensure they are integrated with estate planning decisions and are internally consistent in how they direct benefits to relevant parties, an SMSF legal expert has said.
Cooper Grace Ward partner Scott Hay-Bartlem said a number of alternatives to binding death benefit nominations (BDBN) were starting to appear in the SMSF sector and under names such as ‘SMSF wills’ or ‘binding death arrangements’, but noted they all operated from a common basis and therefore had to achieve similar outcomes.
“A BDBN in essence is an agreement between the trustee and the member which is supported by the trust deed,” Hay-Bartlem said during a webinar today, noting early versions were less complex than those in use today.
“There is far more to a BDBN now and it needs to cover revoking existing documents, tying in with reversionary pensions and interactions with other documents and arrangements in the SMSF.
“It is a far more complex document than the simple versions created years ago and so whether it is an SMSF will or binding death arrangement or BDBN, they all have to come from the same place.”
He said as a result of this need to create an agreement that was in keeping with the trust deed, alternatives to BDBNs still had to offer the same outcomes.
“The important thing is the integration with the overall estate planning and ensuring everything is consistent,” he said.
“Too many times we look at people’s situations and ask what were they thinking because we find inconsistent documents all over the place.
“So, with these alternative documents we want to be sure there are clear and correct recipients, and we need to make sure it is consistent with pensions and reversions and can review it regularly to make sure it all comes together when required.
“A case in point is a file we had earlier this year where the BDBN could have revoked a reversion to a client but it stopped short of doing so. Had it been a properly formed BDBN that removed the reversion, our client would have had nowhere to go; instead they got the money.”