General / Jun 29, 2020

Check your BDBN against the trust deed of the SMSF

Brent Jones
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by Duc Hong

Many SMSF trust deeds include a standard Binding Death Benefit Nomination or require that the BDBN follows a set format. For the BDBN to be valid and to avoid uncertainty when it’s come to paying out a death benefit, it is necessary for the deed to incorporate specific clauses and powers that dictate the distribution of death benefits to the beneficiary via a BDBN.

It is recommended that deeds should be current and have specific clauses covering the distribution of death benefit via BDBNs and not rely on generic or catch-all clauses. It is possible in such cases that the BDBN won’t be effective and the trustee is not obligated to follow the nomination.

It is important to note that a BDBN within an SMSF is different to other types of super funds. The ATO has held that SIS Reg 6.17A (three year expiry of BDBNs) does not apply to SMSFs. This will be the case unless the deed specifies a 3 year period, or contains a default statement that a nomination must satisfy the “statutory requirements”. When a deed is updated, existing BDBNs should be reviewed against the terms of the current and previous deed. It may be that the BDBN meets the requirements of the new deed, but will not be valid if it did not meet the requirements of the deed that was in force at the time.

Completion of the BDBN form
Where BDBNs are not completed correctly, they may be invalid and the treatment of any death benefit will revert to the provisions of the deed. This is not an uncommon situation and becomes more critical where there is potential for a dispute.

For the BDBN to be valid, it must be

  • properly executed in accordance with the rules outlined in the trust deed
  • in writing (hence electronic signature will not be possible)
  • signed and dated by the member in the presence of two witnesses.

If the nomination does not meet any of these requirements, the BDBN may be at risk of being considered invalid and the distribution of any death benefit left to trustee discretion. 

If you have any queries, please call the team on 1300 364 597, email info@smsfengine.com.au or visit www.smsfengine.com.au.

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