It is possible to add a reversionary beneficiary to an active pension where allowed under an SMSF trust deed and the terms of the pension but such a change has never been tested in court, an SMSF technical expert has pointed out.
Heffron head of SMSF technical and education services Lyn Formica said where no reversionary beneficiary was nominated on an income stream when it first commenced it was important to examine the documents relevant to it.
“What we would be checking here is making sure the trust deed of the fund and the terms of condition of the pension allow for those terms and conditions to be changed while the pension is still on foot,” Formica noted during a webinar hosted yesterday.
“If that is the case the change does not require the cessation of the pension and commencement of another pension on different terms and conditions.
“If we are able to change the terms and conditions of the pension, while the pension still in play, then potentially we could pop a reversionary [interaction] in place and also check what the outcome is going to be for social security purposes.”
Formica acknowledged, however, this type of pension amendment has never been tested in the courts as has been the case with binding death benefit nominations (BDBN).
“We have had lots of case law in relation to BDBNs and with Hill V Zuda I think we are all done and dusted [in knowing] how binding nominations work in an SMSF context,” she said.
“We have never had a case in relation to a reversionary [condition], and specifically adding [one] after the pension has been commenced.”
Despite this fact, Formica suggested there may be good reasons to consider adding a reversionary beneficiary to a pension.
“Doing a stop and restart of that pension is perhaps going to make the client even worse off because we’ll be combining components.
“In terms of documentation, we need to have a deed that specifically allows for it, and then have the trustee requesting that particular change and a trustee resolution agreeing to that particular change.”
