SMSF members do not have to provide trustees of their fund with a binding death benefit nomination (BDBN) prior to their death for it to be valid after recent legal proceedings declared that requirement not applicable for SMSFs.
DBA Lawyers special counsel Bryce Figot noted an SMSF member is under no legal obligation to provide a BDBN to the fund’s trustee in order for the nomination to be considered valid and this was confirmed in the recent Hill v Zuda proceedings.
“Everyone’s will is a secret document until the day you die. In fact, even after the day you die it’s a secret document. It only becomes public when it gets probated,” Figot said during a recent webinar.
“Why can’t my BDBN be the same? Well, Hill v Zuda does have an impact on this question.
“If [Superannuation Industry (Supervision)] regulation 6.17A applies [to an SMSF], the answer is yes, a BDBN must be given to the trustee by the member.
“Now that we have had Hill v Zuda it tells us that regulation 6.17A does not apply. Therefore there is no legislative requirement that a BDBN needs to be given. Thus, again, it comes down to the deed.”
In order to avoid conflict, he suggested SMSFs implement a detailed deed that clarifies whether a BDBN will be provided to the trustee.
“We expressly cite in [the DBA Lawyers] deed: ‘No, you do not have to give [the BDBN].’ I think that is really important because I can assure you that people do fight about whether or not it was given,” he said.
He added that where SMSF members may have difficulty in drafting BDBNs that remain secret from other members, the use of a single fund may not be ideal.
“If you are in an SMSF and you are not comfortable having a conversation with your co-trustee or director about what they are going to do with your super when you die, there is probably a more high-level solution [and that is be] in a different SMSF,” he said.
“If you can foresee that sort of problem, just get out of the fund.”
In the same webinar, he also noted that while a BDBN was not limited to three years under regulation 6.17A, a trust deed could constrain the period of its operation.