One prominent industry lawyer believes that a considerable portion of those SMSF trustees with binding death benefit nominations (BDBNs) in place are “skating on thin ice” and creating significant risk of litigation.
The provision of BDBNs is becoming increasingly problematic and potentially putting clients’ estate planning strategies at risk, DBA Lawyers director Daniel Butler told SMSF Adviser.
“We think the practice out there is very low grade,” Mr Butler said. “You have to have quality documents and you need to know what you’re doing. But most people are sacrificing other clients’ affairs with low-grade quality documents that are very sloppy. Lawyers are going to have a picnic.”
“People are going mechanical and want to have everything automated and want cheap,” he added. “So my theory is that most people out there, the general populous, generally don’t have a BDBN.”
Mr Butler said base-level errors are surfacing on masse, including that a lot of trustees have BDBNs which have technically expired.
Another significant issue, Mr Butler said, is that trustees are not paying appropriate attention to their document trail when creating a BDBN.
“If you want to do a BDBN, you should do a thorough deed document trail review,” Mr Butler said. “With funds that have been going for a while, there may be half a dozen documents to look at to make sure the whole chain of documentation does stack up to scrutiny.”
Similarly, Holley Nethercote partner David Court agreed that BDBNs are increasingly causing “a lot of issues” for SMSF trustees.
“There have been a lot of disputes that have gone to court. And the fact they’ve gone to court shows that in effect there’s uncertainty, and the fact there’s uncertainty means it wasn’t done properly in the first place,” Mr Court told SMSF Adviser.
Mr Court believes BDBNs are becoming an increasing area of concern for various reasons, including because of the increase in the size of SMSF balances as the superannuation system matures.
“There are big benefits that are frankly worth fighting in court over. Whereas previously, perhaps $20,000 or $30,000 just wasn’t worth arguing about,” he said.
For more on this topic, see Daniel Butler's column, 'Think you have a valid BDBN? Think again'
SUBSCRIBE TO THE SMSF ADVISER BULLETIN
- 21 Aug 2016Risks flagged with real estate appraisal valuesBy Miranda Brownlee
- 21 Aug 2016Lawyer challenges ATO view on two fund strategiesBy Miranda Brownlee
- 18 Aug 2017ATO locks in details, addresses panic on real-time reportingBy Katarina Taurian
- 18 Aug 2017Data feeds unreliable for new reporting, says mid-tierBy Miranda Brownlee
- 18 Aug 2017Tax component confusion spurs potential tax liabilitiesBy Miranda Brownlee
- 18 Aug 2017Contributions triple in June quarter, survey showsBy Staff Reporter
- view all
- ATO locks in details, addresses panic on real-time reporting
The tax office has addressed several points of confusion with the new events-based reporting regime, locked in key deadlines, and outlined w...read more
- Data feeds unreliable for new reporting, says mid-tier
With an estimated 20 per cent of SMSFs still encountering errors from data feeds, one mid-tier firm believes the ATO should allow SMSF pract...read more
- view all