SMSF professionals are being warned that documents preceding a binding death benefit nomination, such as a trust deed, look set to play an increasingly critical role in death benefit disputes.
Speaking at an SMSF Association breakfast this week, Trusted Legal Solutions director David Fullerton stressed to practitioners the importance of understanding that a binding death benefit nomination must be pursuant with what the rules of the fund will actually allow the member to do.
“I think [this is] where there is going to be huge scrutiny by lawyers in dispute cases, not just over the binding death nomination form itself, but the documents that precede that,” said Mr Fullerton.
“I think what’s going to happen in litigation is there is going to be scrutiny over the documents that govern the fund and someone’s going to try and run the argument that the deed that everybody thinks is the governing deed for the fund, in fact isn’t.”
Mr Fullerton referred to a recent matter with a client where there had been a number of deeds of variation in a chain.
“There were a number of deeds in the chain, and the final one gave the member the right to do a binding death benefit, but what was in the original deed was a clause that said you could only vary the trust deed with the prior written consent of the Commissioner of Taxation,” he explained.
As the client had not obtained written consent from the Commissioner of Taxation when they undertook the first deed of variation, Mr Fullerton said the SMSF was still governed by the original deed.
“We approached the commissioner and asked him to give us consent to amend the deed, and the commissioner said ‘no’,” he said.
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