A trustee faced with a lapsed binding death benefit nomination (BDBN) should steer clear of using it and instead apply their discretion around making benefit payments, an SMSF legal expert has pointed out.
DBA Lawyers special counsel Bryce Figot said while BDBNs held by an SMSF do not have time limits under superannuation law, they can apply where a deed imposes them and a trustee has to act in line with those fund-specific rules.
“If a BDBN was completed five years ago and the deed refers to a three-year lifespan, would it be reasonable then for a surviving trustee to still act on the BDBN and to action the request of a dead member knowing the BDBN is void and could be challenged?” Figot said during a recent online briefing.
“The trustee could do it, but they would be ill-advised to do that.”
He said the best time to address a BDBN that had lapsed was while all the members were still alive and at that time update the deed and make a new nomination.
Recognising it was impossible to make retrospective changes in the present, he said the trustee could still move ahead with the BDBN, stating it was at one stage valid when the member was still alive, and being aware of the potential for a challenge, exercise discretion in what steps they take.
“If the trustee says ‘I am now going to exercise my discretion’, here’s what I think the trustee should do. They should write to every possible recipient and say ‘tell me everything you think I should know’ and then exercise the discretion,” he said.
“Now, the outcome could be subject to all the information that is in front of the trustee and it could be they decide to still pay it to the person named in the BDBN, and it could be that the lapsed BDBN is a factor the trustee takes into account.
“All of this is up to the trustee and I might add the trustee should never give reasons [for their decision].
“You can’t compel a trustee to give reasons, but if they choose to give reasons, then a court can review those reasons, so don’t give reasons.
“So would it be reasonable to act on a lapsed BDBN? The very short answer is no. Don’t do it.
“Instead, a trustee has discretion and they can take the lapsed BDBN into account, but should treat it as a discretion matter, not as a BDBN.”
