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Legal pitfalls of a BDBN

Posted on 24 September '15 by , under General News.

Despite its significance, there can be quite a few pitfalls that have the power to override the wishes in a binding death benefit nomination (BDBN) and render it invalid.

A BDBN is a member’s written direction to their super fund’s trustee that outlines who the trustee is to pay the member’s death benefit to upon the member’s death. BDBNs are a relatively new legal instrument, and as such, the laws regarding them continue to develop and change, which is why many pitfalls can exist to those who are unaware of changes. Getting a BDBN right is no easy tasks, as there are numerous risk areas including:

Careless wording
Many BDBNs can be easily challenged due to poor wording such as ‘the BDBN is only binding if it is to the trustee’s satisfaction’. This type of wording can easily give rise to argument if, for example, the trustee decides to reject the BDBN when the member dies.

Prior deed history
Most SMSF deeds are varied without proper checks on the prior document trail, including conditions and consents that must be satisfied. If an SMSF has existed for some time and undergone variations, a deed history review may be warranted. Such a review should encompass:

– the original deed of establishment

– any subsequent deed of variation

– any deeds of change of trustee

It may be best for an experienced professional to conduct the review. Attending to any issues promptly can be far more cost effective than being exposed to future legal challenge.

Poor quality documents
Ineffective documents may result in a member’s super proceeds being paid to the wrong people. In quite a number of recent disputes, this has happened after an expensive and drawn out legal battle. While it can be tempting to save some money upfront by using a cheaper option, high-quality will always pay off in the long run.