Imagine a conflict between pension documentation and a binding death benefit nomination (‘BDBN’) in a self managed superannuation fund (‘SMSF’) context. For example, the pension documentation states that the pension is reversionary to the surviving spouse; however, the BDBN states that the death benefits are to be paid to the estate. Generally, the question of which document takes priority is decided by considering both documents, as well as the governing rules of the SMSF. However, this article explores whether a BDBN taking priority over pension documentation should be the preferred approach for SMSF members, accountants and financial planners by considering some examples.
Which approach is more cost-effective?
Some accountants/advisers take the view that it is more cost-effective to have pension documentation overriding a BDBN. It is true that there are many document suppliers and even accounting software that can generate pension documentation for very little or even no cost. On a surface level, this view may seem quite attractive. However, consider the following example.
In contrast, consider the approach where the SMSF’s governing rules provide that the BDBN overrides the pension documentation. This example reflects the approach taken by DBA Lawyers.
As Example 2 demonstrates, taking an approach where the BDBN overrides pension documentation can also be cost-effective. In particular, this approach is the more cost-effective approach where the member has multiple pensions.
Which approach involves more risk for the accountant/adviser?
Where the governing rules of the SMSF state that the pension documentation overrides the BDBN, this approach could place the accountant/adviser at risk whenever they assist SMSF members with pension documentation. We illustrate this with two examples.
In contrast, consider the likely outcome where the SMSF’s governing rules provide that the BDBN overrides the pension documentation.
Accordingly, these examples demonstrate that taking the approach where the pension documentation overrides the BDBN could expose the accountant/adviser to additional risk.
The safest and best-practice approach is to check that the pension documentation and the BDBN are consistent. However, as the examples in this article demonstrate, a BDBN taking priority over pension documentation should be the preferred approach for SMSF members. Accordingly, there is merit in obtaining SMSF documents (including SMSF governing rules) that support this approach, which can act as a safeguard where there is any inconsistency between the pension documentation and BDBN.
Naturally, for advisers, the Australian financial services licence under the Corporations Act 2001 (Cth) and tax advice obligations under the Tax Agent Services Act 2009 (Cth) need to be appropriately managed to ensure advice is appropriately and legally provided.
DBA Lawyers offers a range of consulting services in relation to SMSFs, pensions and succession planning. DBA Lawyers also offers a wide range of document services, including pension and BDBN documents.
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Note: DBA Lawyers hold SMSF CPD training at venues all around. For more details or to register, visit www.dbanetwork.com.au or call 03 9092 9400.
For more information regarding how DBA Lawyers can assist in your SMSF practice, visit www.dbalawyers.com.au.
4 July 2019