Document flaws can allow BDBN challenges
Binding death benefit nominations (BDBNs) can still be open to legal challenge if the documentation behind them is flawed, highlighting the need for specialised estate planning advice that ties in with a client’s broader wealth plan, according to Australian Unity Trustees.
The trustee service provider’s national manager of estate planning, Anna Hacker, told SMSF Adviser that rising incidences of family members challenging BDBNs meant members and advisers needed to do their due diligence not only around current fund documentation but around historical and related documents, too.
“Make sure you get advice because the tiniest slip-up can cause it to be invalid — it has to be from someone that knows what they’re doing,” Ms Hacker said.
“Not just the current deed, but make sure the line of trustees is also valid, because I’ve heard of a couple of situations where trustees from a decade ago were invalid, which meant all the ones after it were invalid, which meant the BDBN was invalid.
“The lawyer had only looked at the current deed and said this is definitely going to be valid, but they had not gone through the original documents. That is the difference between advice and expert specialist advice, so you don’t want to cut corners in that aspect of the structuring.”
However, Ms Hacker said it was important for such advice to fit into any broader financial plan the member had, as a lack of communication between advisers could also cause problems on the legal front.
“It’s important to make sure everything matches up, because a number of times I’ve had a client that’s set up a BDBN through their adviser because they knew that’s what they should do, but then they come and see us and they realise it’s not set up in the way they wanted,” she said.
“It’s about making sure your trusted advisers are speaking to each other so it’s not overruling what the other person does.”
Ms Hacker added that in light of constant changes to super rules and caps, it was also important to keep death benefit documentation up to date, as bequeathing assets in a tax-inefficient way was likely to cause more headaches than benefits for the recipient.
“Make sure it’s updated regularly because there can be changes to the law, which means the nomination might be valid but it’s not what you actually want,” she said.
