Wrong benefit payment paperwork can ‘undo’ you

His comments preceded the 10th annual Strategy Day, where he and fellow partner at Cooper Grace Ward Clinton Jackson will unpack the challenges of getting money out of an SMSF before and after death, how advisers could help their clients navigate this, and the proper process for paying death benefits in order to avoid a challenge.

“We’ve got to make sure that we’ve got good documents signed by the right people,” Mr Hay-Bartlem told SMSF Adviser.

“We’ve got to make sure the right people are involved and have documents that reflect what they’re trying to do. The documents shouldn’t just be what they’ve used before, because they may not be correct. They’re the things that people are fighting about and could really undo you.”

For instance, the Hill v Zuda case highlighted that the rules of a binding death benefit nomination (BDBN), and whether it is effective or valid, is dependent on the trust deed, Mr Hay-Bartlem said.

As such, he emphasised, it is critical for SMSF members to ensure that their trust deeds have a robust BDBN clause and that they follow it.

“You’ve got to follow what your deed says. People still don’t do that. The BDBNs must work you’re your deed. Otherwise, they’re not valid,” he warned.

“Read the deed.”

Hill v Zuda also illustrated that the SIS rules for BDBNs do not apply to SMSFs. However, many SMSF trust deeds stipulate that their BDBNs are only binding if it is binding under SIS, Mr Hay-Bartlem pointed out.

“Because an SMSF can never have a BDBN on SIS, those trust deeds don’t work for BDBNs,” he said.

“We’ve sent lots of people back to get their trust deeds changed because they’ve got provisions that are imported from the SIS Act that don’t work.

Mr Hay-Bartlem urged members to obtain professional advice and ensure that their documents are tailored to their circumstances.

“I’ve heard many times that a software spat out the documents, but it was never tailored to their situation. They might be doing something unusual or something that hasn’t been contemplated,” he said.

“Everyone needs to get advice to make sure their documents do what they want them to do, and work with the deed. Make sure you get advice that ties in those resolutions, BDBNs, and pension documents to what they’re doing in the deed.

“Templates are just a starting point.”

Significant consequences

The consequences of presenting misaligned documents could be significant, Mr Hay-Bartlem said, including that the member may not achieve their goals.

“I’ve seen trust resolutions portioning the income between the member accounts at the end of the year when we’ve set some assets aside,” he said.

“We’ve segregated that member. The trust resolution at the end of the year apportions the income based on member balances. And that’s just not right. It doesn’t work. That’s not what the member set out to achieve.

“Do you have a trustee that lets you pay a pension properly? Because if you don’t have appropriate pension provisions in your trust deed, you can’t pay a pension.”

Mr Hay-Bartlem drew attention to other traps advisers and members could fall into, including ensuring that they have done the appropriate planning and sent funds to the appropriate place with the right set of reversionary pensions or BDBNs.

At the SMSF Adviser Technical Strategy Day, he and Mr Jackson will outline the importance of ensuring that the chain of trust deeds works as members intended them to.

“People come adrift when they think they’re working on something that they think is the trust deed but there’s a problem earlier in the chain. Suddenly, your trust deed is not the one you think you’re working on,” Mr Hay-Bartlem pointed out.

He concluded: “There are so many elements that advisers need to be careful with when pulling it all together to ensure clients get the results they want.

“You don’t want to end up as a case that we talk about at next year’s technical summit.”

To hear more from Scott Hay-Bartlem and Clinton Jackson about how to retrieve money out of an SMSF without incurring unnecessary costs, come along to the SMSF Adviser Technical Strategy Day 2023.

It will be held in the following locations:

• Tuesday 17 October at the Four Seasons Hotel, Sydney

• Wednesday 18 October at Rydges Southbank, Brisbane
• Wednesday 25 October at Grand Hyatt, Melbourne.

Click here to buy tickets so you don’t miss out!

For more information about the conference, including the agenda and speakers, click here.