Common Pitfalls in Preparing Binding Death Benefit Nominations for Your Self-Managed Superannuation Fund
A Binding Death Benefit Nomination (BDBN) is a critical document that determines how your superannuation death benefits are distributed after your death. However, numerous technical and legal issues can invalidate your BDBN, potentially leading to unintended outcomes and family disputes. Here are the key areas where things can go wrong:
Trust Deed Related Issues:
The SMSF trust deed does not allow for a binding death benefit nomination (BDBN)
The BDBN is not in the approved form by the self-managed superannuation fund (SMSF) trust deed
The BDBN does not comply with the terms of the SMSF trust deed (Munro v Munro [2015] QSC 61)
Deed variations were not properly completed rendering subsequent deeds and BDBNs made on the latest deed invalid
Previous trust deed amendments may have been executed incorrectly, creating a chain of invalid documents
Beneficiary Related Issues:
The nominated beneficiary is not a SIS dependant
The BDBN witnesses are nominated beneficiaries
At the time of the member's death the beneficiary is bankrupt (Cunningham (Trustee) v Gapes (Bankrupt) [2017] FCA 787)
The beneficiary may have predeceased the member
The relationship status with the beneficiary may have changed since making the BDBN
Documentation and Execution Issues:
The BDBN is poorly worded and does not satisfy the requirements under the SMSF trust deed as in Munro v Munro [2015] QSC 61
The nomination is a mere wish and non-binding (Donovan v Donovan [2009] QSC 26)
The SMSF trustee has not acknowledged receipt of the BDBN
The BDBN has lapsed
Percentage allocation does not add up to 100%
The BDBN hasn't been signed and witnessed correctly
Missing or incorrect dates on the documentation
Alterations or corrections made without proper initials or authentication
Pension and Compliance Issues:
The pension documents are inconsistent with the BDBN - the pension may be set to be reversionary to the spouse but their BDBN may require payment to their Legal Personal Representative
The pension documents and the BDBN are inconsistent with the SMSF trust deed
The member didn't receive information about the BDBN when they should have
Reversionary pension nominations conflict with BDBN directions
Regular review and updates haven't been maintained as required
Additional Considerations:
Changes in family circumstances haven't been reflected in the BDBN
Multiple BDBNs exist without clear indication of which is the latest version
The BDBN doesn't account for all superannuation interests
Tax implications haven't been properly considered in the benefit distribution
The BDBN doesn't align with other estate planning documents
Legal Precedents to Consider:
Recent court decisions have emphasised the importance of strict compliance with trust deed requirements
Technical deficiencies can void otherwise clear intentions
Courts generally won't correct defective BDBNs
The cost of litigation to resolve disputes can significantly reduce the death benefit
The consequences of an invalid BDBN can be severe:
Unintended beneficiaries may receive benefits
Family disputes and costly legal battles
Delayed payment of death benefits
Adverse tax consequences
Distribution defaulting to trustee discretion
Don't risk your superannuation benefits being distributed against your wishes. Professional advice is essential to ensure your BDBN is valid and reflects your intentions.
Contact our experienced team for comprehensive assistance with your BDBN: Call us on 04211 45637 or email at val@crystallawyers.com.au for expert guidance in preparing and signing your BDBN for your SMSF.
Remember: Regular reviews and updates of your BDBN are just as important as the initial setup. We recommend reviewing your BDBN every 3 years or when significant life events occur.
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