BDBN reviews needed to guard against continued exposure to legal risks
With the law around BDBNs continuing to develop, SMSFs continue to be exposed to arising pitfalls and dangers that can easily be overlooked, with recent case law highlighting the need to review the trust deed and document trails to ensure they align with the estate plan.
While binding death benefit nominations (BDBNs) can be an important tool for a member’s succession planning, they are still a relatively new legal instrument, with the law around it still continuing to develop and evolve over time. DBA Lawyers had noted that SMSFs can often run into numerous minefields that can upset a binding death benefit nomination and render it invalid.
Recently, the Western Australian Court of Appeal also handed down its decision in Hill v Zuda Pty Ltd  WASCA 59. It provided a strong answer to the question of how long a binding death benefit nomination can last for in ALL Australian jurisdictions.
In a recent DBA Lawyers podcast, director Daniel Butler said that in Hill v Zuda, the Court of Appeal held that it is possible for an SMSF’s trust deed to be drafted to enable a binding death benefit nomination to last for more than three years and that this is the position in all Australian jurisdictions.
Given the outcome of this latest decision, Mr Butler noted that, from a legal perspective, SMSFs should consider reviewing their existing BDBN and revising that it is fit for current circumstances and to have it done on a quality deed.
“People really have to be mindful that you only really get one shot at this and that is before you pass away, and we never know the hour nor the minute this happens, it really is something we should attend to on a timely basis,” he said.
“I would be recommending advisers, particularly if they are on the three-year deed system, that they look at their BDBNs and get a separate legal opinion.
“A lot of these advisers could be exposed and they could be doing things that are effectively legal work which is ‘where the wool has been pulled from under them’ because the WA Supreme Court has come out and said again the SIS provisions do not apply.”
Furthermore, Mr Butler pointed out that judgments in the REST Super which was also confirmed in HESTA decision, called into question whether importing the SISA and SISR BDBN requirements may give rise to even bigger problems than an inability to implement non-lapsing BDBNs. In a 189-page judgment Justice Blue had said that those provisions “are ambiguous and uncertain and lead to difficulties and should be recast by the Commonwealth”.
“In any event being a law firm, we’re seeing the dangers and risks of doing a BDBN and increasing disputes, and our firm at the moment is working on a couple of disputes whether a BDBN is valid or not,” Mr Butler said.
“We really have this system now that there’s a lot of BDBNs out there and very rarely does a BDBN pass our scrutiny that it is actually unchallengeable. We often find reasons to pick apart or pull apart and undermine BDBNs because they haven’t been done for one reason or another.”
Another aspect to watch out for is the document trail for an SMSF and this leads to the importance of planning for a very sound deed document trail for the BDBN, according to Mr Butler.
“I think it is time to review and revise this, and if you’re not comfortable, advisers should be there making sure they’re not exposed to the very unnecessary risk where it is technically legal work,” he noted.
“This includes where they may not be covered by their professional indemnity insurance, as they could have been contravening the Legal Profession Act in various jurisdictions and their professional guidelines where non-qualified lawyers should not be doing legal work.
“It is something to bear in mind, and a lot of people do not see those consequences from a mere innocuous document which is a form where often it’s thrust in front of a client for completion.
“When you do complete it, it has to be part of the holistic estate plan, which should not be done in isolation apart from an overall approach to the estate planning for that client and their family, and this is often something that’s overlooked.”
Tony Zhang is a journalist at Accountants Daily, which is the leading source of news, strategy and educational content for professionals working in the accounting sector.
Since joining the Momentum Media team in 2020, Tony has written for a range of its publications including Lawyers Weekly, Adviser Innovation, ifa and SMSF Adviser. He has been full-time on Accountants Daily since September 2021.