An SMSF legal expert has reminded practitioners and trustees to regularly review and update their estate planning documents and the trust deed of their fund following changes in their personal circumstances to ensure optimal outcomes in the event of a fund member’s passing.
Speaking at the SMSF Association National Conference 2024 in Brisbane last week, Cooper Grace Ward partner Scott Hay-Bartlem said the validity of a binding death benefit nomination (BDBN) could change when a fund member experienced a separation with the proposed beneficiary of a death benefit.
To that end, Hay-Bartlem suggested the most prudent approach was to review the details contained in the fund’s governing documents as not all superannuation fund trust deeds expressly terminated a BDBN upon the end of a spousal relationship.
“Do you want a binding death benefit nomination to stop if a de facto relationship ends in every single occasion and does your SMSF trust deed say that?” he told delegates.
“I would say you may not. Some of them, you clearly do, but you need to think about what the terminating events are for your binding death benefit nomination.
“Your clients might [experience a change in their circumstances] and not realise the impact it has on the planning. Again, you need to check the deed.”
He pointed to a recent legal case where a relationship reportedly ended before the sudden death of a member of an Australian Prudential Regulation Authority-regulated fund.
The deceased had designated their partner as the beneficiary of a death benefit, but wished to remove their de facto from the BDBN before they died.
“[The question in this case] was had the relationship ended because the trust deed for the APRA fund said that the binding death benefit nomination becomes invalid if the de facto relationship ends,” he said.
“The trustee said he clearly ended the relationship. AFCA [Australian Financial Complaints Authority] said that, no, what he’d done was not enough to end the relationship because he hadn’t actually told his partner and the Federal Court.
“[However], the relationship has ended because he expressed an intention, which he then acted on. You don’t actually have to tell the other person, provided you act on your intention to end the relationship.
“There’s another example of a lesson of knowing what your deed says because the act of separating actually changes the estate planning and, in that sense, is quite different to separation. If you’re married and separated, it’s generally going to be the divorce that triggers the end.”