Update of BDBN guidance needed to resolve ‘industry conflict’
While the Hill v Zuda decision has provided clarity on the ability of a BDBN to override pension documents, the ATO guidance in this area is still in need of an update, says a law firm.
In a recent opinion piece published in The Australian Financial Review, SMSF Association chief executive John Maroney said while the High Court decision Hill v Zuda has provided certainty around how long a binding death benefit nomination (BDBN) can last, the consequences of the decision “flow far beyond this”.
Mr Maroney said the Court’s ruling has also provided clarity around reversionary pensions and has established that a BDBN can override pension documentation depending on the drafting of the deed.
“For trustees, this good news comes with one overriding message — the trust deed is paramount, and they need to ensure it is always up to date,” said Mr Maroney.
“It also means a BDBN can make a pension reversionary mid-stream,” he added.
Both these issues he said have been a source of conflict for the industry for some time, he stated.
“This court decision provides clarity that a BDBN can be everlasting and that they can be the ultimate estate planning document, trumping instructions in the pension documents. This provides certainty and clarity on how a member’s benefits are to be dealt on their death,” he stated.
“More importantly, the Hill v Zuda case highlights the importance of what your SMSF trust deed says. It is the ultimate law, setting out the rules on what the fund can and cannot do.”
Despite the clarity provided on these issues by the High Court ruling, DBA Lawyers director Daniel Butler said there are still some providers in the SMSF industry pushing the view that pension documents will always apply before a binding death benefit nomination.
One of the issues, said Mr Butler, is that the ATO position on this in LCR 2017/3 is not clear with some relying on this guidance to support their view on reversionary pensions.
“We have [however] had oral confirmation from certain ATO officers that the view that BDBNs can override pensions would apply if the deed is appropriately drafted,” he stated.
“We expect the ATO will update its material on this topic after the Hill v Zuda [2022] HCA 21 decision.”
Determining whether a reversionary pension or BDBN will prevail where there is a conflict between the two requires a careful examination of all the relevant documentation, Mr Butler explained.
He noted that some SMSF deeds expressly specify that a pension reversion nomination will prevail over a conflicting BDBN.
Where the trust deed provides for this, Mr Butler said advisers need to be extra careful and undertake additional due diligence to ensure that any reversionary pension they set up does not impact a previous BDBN that’s been established or interfere with the client’s succession planning.
Mr Butler also warned that this may increase the risk of advisers engaging in legal practice.
Miranda Brownlee
Miranda Brownlee is the deputy editor of SMSF Adviser, which is the leading source of news, strategy and educational content for professionals working in the SMSF sector.
Since joining the team in 2014, Miranda has been responsible for breaking some of the biggest superannuation stories in Australia, and has reported extensively on technical strategy and legislative updates.
Miranda also has broad business and financial services reporting experience, having written for titles including Investor Daily, ifa and Accountants Daily.
