BDBN rules for SMSFs not clear cut

The two witness and three-year rules do not apply to binding death benefit nominations (BDBN) for self-managed superannuation funds (SMSFs) unless the trust deed possess those rules, according to legal documentation service SUPERCentral.

The two-person witness rule meant that members must be in the presence of two independent adult witnesses when they signed a nomination. The three-year validity rule meant a nomination ceased to have effect three years after it was first signed, or last confirmed or amended by the member.

Unlike SMSFs, these rules applied unambiguously to industry and retail super funds.

Michael Hallinan, executive consultant at SuperCENTRAL, said the confusion was “not merely lawyers” joyfully disputing legal issues for their profit and their delight.

VIEW ALL

View all

“The outcome of this controversy may dramatically affect the allocation of death benefits and also may frustrate carefully constructed estate planning arrangements,” Hallinan said.

Essentially, a BDBN was a direction by a member to the super trustee as to the allocation of the member’s death benefit to or amongst the member’s dependants and/or estate.

SuperCENTRAL said the approval of the direction by the super trustee was not required for the direction’s legal effectiveness. For both retail and industry super funds, a BDBN must satisfy the two witness and three-year rule. However, for SMSFs, the issue is not so clear cut.

After careful consideration of case law from around the country, SuperCENTRAL said: “The weight of judicial case law is that the two witness and the three-year rules do not apply to BDBNs made for SMSFs unless the trust deed of the SMSF self-possess those rules – whether by expressly setting out those rules in the trust deed or by incorporating those rules”.