Estate Planning

Courts focus on BDBN form over substance

courts BDBN form

The wording of a BDBN, rather than its intention, will be what is tested in court in the event there is a dispute about the outcome of the nomination.

SMSF advisers and trustees relying on loosely worded binding death benefit nominations (BDBN) will find they are easily challenged under law and rejected by the courts, according to a superannuation lawyer.

Cooper Grace Ward partner Hayley Mitchell said advisers and trustees should be looking at a BDBN from an outside perspective and how it could be attacked in the event of the death of the trustee who made the nomination.

“What you need to be looking for is what does the trust deed say and what does the binding nomination say and whether they marry up or if there is any room for argument,” Mitchell said during a webinar yesterday.

“Think about it on the flip side. If someone was looking at the nomination after death, how would they attack it?

“If there are areas where there’s room for dispute or argument, you need to be fixing that, which could mean looking at varying or updating the terms of the trust deed or ditching the form and getting a new binding nomination.”

She said a number of legal cases have focused on the written content of a BDBN and not its intention, and SMSF lawyers continue to focus on this area because of the decisions made in those cases.

“The reason why we get really finicky about binding nominations is because of all of these cases,” she said.

“The courts take a really strict approach when they are interpreting whether a BDBN is valid and they take ‘a form over substance’ approach.

“They look strictly at the binding nomination and the terms of the deed and do they marry. So, if the trust deed says that a person has turned around three times before they sign a binding nomination, there has to be evidence that that has been done.

“The courts don’t take well to the view that ‘It was clear what the person wanted their binding nomination to do, but the form doesn’t quite get there and should the court uphold the validity anyway’. They don’t do that. They say if it strictly doesn’t comply with the form, it is not valid.”

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