A specialist SMSF lawyer has warned the effectiveness of a binding death benefit nomination (BDBN) can be compromised if the associated wording does not properly support the measure.
Speaking at the Australian Shareholders’ Association Conference recently held in Melbourne, DBA Lawyers director Daniel Butler noted a BDBN could be rendered completely ineffective if the wording giving it effect said “your binding death benefit nomination is only binding if it is to the trustee’s satisfaction”.
“Well let’s say you’re the surviving spouse [and not the BDBN beneficiary]. You’re presented this binding death benefit nomination and you say ‘I don’t like it’. Then you’ve got a fight on your hands,” he said.
“Wording like that is loose wording and those are the things lawyers drill into and chisel away in resulting court cases.”
Butler pointed out BDBNs are not mandatory or compulsory and may not be necessary. Further, he suggested not putting one in place can help in avoiding lengthy legal challenges upon death.
“You have to work out whether they are needed. Where you’ve got a real trusted relationship you may not need one. [That would be] where you trust your surviving [individuals],” he said.
“It’s really [about] putting the person who you trust in control after you pass away. You never know the hour or the minute [when death may occur] and what you do want to have is a trusted person looking after your interests.”
He also issued a warning about relying on trust deeds to effectively manage situations dealing with the death of a member, especially when addressing the voting power of the SMSF members.
To this end, he warned there is a popular trust deed in the market that transfers all of the decision-making power of the SMSF to the surviving spouse, meaning any influence the deceased member may have wanted to have is eliminated.
“It’s a really poorly written deed,” he said.