An SMSF expert has confirmed trustees do not have to view binding death benefit nominations (BDBN) and reversionary pensions as being mutually exclusive estate planning tools and suggested they can be used in conjunction with one another.
Accurium senior SMSF educator Anthony Cullen noted: “The question is: why can’t you have both? The thing about a reversionary pension is it only covers a pension interest. A reversionary pension can only go to a beneficiary who can receive a death benefit pension and that is generally the spouse.”
To this end, Cullen said a reversionary pension would be unable to achieve certain arrangements upon the death of a member.
“I might have multiple pension accounts. I might have a taxable pension I want to go to my spouse so I’ll set it up as reversionary,” he told attendees of SMSF Professionals Day 2024 co-hosted by selfmanagedsuper and Accurium in Brisbane last week.
“I might have a tax-free pension I would like to go to my adult children because they are not going to pay any tax on that, but I can’t set that up as a reversionary pension. So how do I make sure that those benefits go where I want them to? By using a death benefit nomination.”
He took the opportunity to demonstrate how the two estate planning arrangements can work together.
“The good thing about the SMSF world is you can have nominations that are cascading. It means for the taxable pension I can have a nomination that says in the first instance I want my benefits in this pension interest to go to my spouse in accordance with the reversionary pension,” he said.
“If that can’t happen because she pre-deceases me or she is no longer a SIS (Superannuation Industry (Supervision) [Act] dependant entitled to receive the benefit, that is, she is now my ex-spouse, I can state my second choice is for the benefit to go to my children or to my estate [via the use of a BDBN].
“So you can actually have these documents work together.”
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