DBA Lawyers –– the best BDBN is now even better –– COVID-19

The COVID-19 pandemic has raised various practical issues for SMSF trustees and members.

Members may wish to make a binding death benefit nomination (‘BDBN’) but may be frustrated by the requirement to have two independent witnesses available as this can prove challenging, if not impossible or illegal, during these difficult and dangerous (COVID-19) times.

To assist our clients, DBA Lawyers has refined its latest SMSF deed and BDBN which will go live from Monday 4 May 2020 and removes the requirement for a member to have their BDBN witnessed. While we strongly recommend that this (witnessing) requirement should always be adhered to if practicable, we nevertheless want to provide documents that are effective and practical for our clients if obtaining witnesses proves problematic.

Members can now make a BDBN without any witnesses. This means they can do this while isolated, with their family, in a hospital or nursing home, etc, where witnesses are generally not available or willing to act.

Execution and witnessing of a BDBN via technology

Most other (non-DBA) SMSF deeds require two independent witnesses to declare that they are in the presence of the member when the BDBN is signed and dated by that member. However, our 2019-20 version of our SMSF deed expressly authorises a BDBN to be made via technology thus allowing a BDBN to be executed via a video conference (such as via Zoom, Skype, MS Teams, etc).

Furthermore, under the latest version of our SMSF deed (prepared after 4 May 2020) a BDBN can be executed without any witnesses.

Thus, under the DBA Lawyers SMSF deed a BDBN can be executed in a practical and convenient manner while still being valid and legally effective. Indeed, DBA Lawyers are recognised as Australia’s leading SMSF law firm who have the greatest depth of expertise in this area having been involved in representing clients in some of the key cases on SMSFs and BDBNs in the country.

In contrast, most other SMSF deeds do not even facilitate a legally effective BDBN (eg, they are poorly drafted or suffer from other defects). For more information on the reasons why we find many other suppliers’ BDBNs fail in this regard, click here.

Naturally, there are a number of safeguards we recommend where technology is used to execute a BDBN. These instructions are included with our documents.

Best practice for BDBNs

As noted above, we strongly recommend that when executing a BDBN, the best practice is followed wherever possible. This involves:

• The BDBN being signed by the member in the physical presence of two adult independent witnesses.
• Each independent witness signing and dating the BDBN using the same pen in the presence of the member and each witness.
• The BDBN being provided to the SMSF trustee who confirms the receipt and validity of the BDBN.
• Notes being kept by the parties and any adviser present asserting that the member is of sound mind and is not unduly influenced by another person.
• The completed BDBN being placed in a fire-proof safe with the member’s other legal documents (typically with the member’s lawyer who prepared their will and who may hold their titles to property, etc).

In the event that a BDBN is ever challenged in the future, a witness can confirm whether the member was the one who signed the BDBN, was of sound mind and was not unduly influenced. While this is best practice, this is not always practical and convenient.

Flexibility in execution

Thus, given the difficulty of obtaining witnesses especially during a pandemic, best practice for executing BDBNs may not be possible. Accordingly, the DBA Lawyers SMSF deed provides flexibility as a member can now make a BDBN:

• Via technology –– under our 2019-20 SMSF deed.
• With or without a witness (or with one witness if there is only one available) –– under our 4 May 2020 SMSF deed.

We also strongly recommend that, if a member completes a BDBN without two witnesses, that they execute a BDBN with two independent witnesses as soon as practicable thereafter.

SMSF deed updates

Our team of SMSF lawyers can tailor documents to minimise the risk of possible future challenge. Please notify us in the ‘special instructions’ section of our order form if you need any special tailoring and we will seek to tailor the documents appropriately. Naturally, there may be an additional fee if the request falls outside the usual scope of our SMSF deed update service.

Conclusions

We firmly believe that we supply the leading SMSF deed and related documents in Australia in that they are the most practical, relevant, most legally robust and best value deed especially in the current climate. We adapt to changes to best suit our client’s needs. For more information on the other value added benefits of our SMSF deed click here. For more information on why you should use our SMSF deed to make a BDBN click here and how our BDBN works in conjunction with a reversionary pension click here (where many other suppliers deeds are defective in this regard).

Given the increasing risks of challenges and disputes involving BDBNs and estate planning, we strongly recommend best practice be followed wherever possible.

For further information on BDBNs, click on the related articles listed below:

• The legal minefield of BDBNs (updated)
• Reconciling inconsistencies between reversionary pension nominations and BDBNs
• Important Supreme Court decision provides further guidance on binding death benefit nominations

*           *           *

This article is for general information only and should not be relied upon without first seeking advice from an appropriately qualified professional.

Note: DBA Network Pty Ltd hold a range of SMSF CPD training online. The next live SMSF Online Update webinar is being presented on 5 June 2020. For more details or to register, visit www.dbanetwork.com.au or call Natasha on 03 9092 9400.

By Shaun Backhaus, Lawyer ([email protected]) and Daniel Butler, Director ([email protected])

19 April 2020