Wills and BDBN raise adviser interest

The complexities of binding death benefit nominations and wills piqued the interest of many at the quarterly Challenger and Financial Standard Technical Services Forum.

Australian Unity head of technical services Yvonne Chu raised the question of what happens when a member dies without a binding death benefit nomination (BDBN).

Another common question Chu comes across from financial advisers is how they help ensure the funds in an SMSF are distributed in accordance to the wishes of their clients.

"It is not always a straight forward exercise and it comes down to looking at control of the fund after the death of the member and whether there's a binding death nomination that meets all the legal requirements.

"While binding death nominations in an SMSF can be problematic for the unwary it can still offer greater planning opportunities and flexibilities that's not available in large super funds," she said.

The SIS Act allows the executor or administrator of the estate to act as trustee on behalf of deceased member, she said, but this is not always the case despite s17A.

Chu pointed to the Marsella case, which recently unfolded at the Victorian Supreme Court.

The Swanton Superannuation Fund was established in 2003 by Helen Marsella (deceased) and her daughter from a previous marriage, Caroline Wareham, who acted as individual trustees. Marsella was the sole member and founder of the fund until her death.

Marsella remarried Riccardo, her husband of 32 years. Upon Marsella's death, Wareham then appointed her husband Martin as co-trustee to satisfy the deed, which requires a minimum of two trustees.

Wareham then exercised her trustee discretion to pay the entire death benefit to herself.

The Court determined whether Wareham and her husband properly exercised their discretion, and acted in good faith, with real and genuine consideration. It ultimately ruled in favour of Marsella's husband Riccardo, removed Wareham and her husband as trustee, and set aside the exercise of their discretion.

It's important to go back to the deed, Chu said, adding almost 70% of SMSFs comprise husband and wives as members.

KJB Law solicitor Kerstin Glomb, who also spoke at the event, highlighted the advantages and disadvantages of distributing assets directly to beneficiaries as opposed to using testamentary trusts.

Distributing directly to beneficiaries is less complex, inexpensive, incurs no ongoing administration costs, she said.

Testamentary trusts on the other hand, provide asset protection against creditors and "predators," allow income-splitting opportunities and beneficiaries to receive funds at the right time.

While minors are taxed at adult rates, testamentary trusts enable children to take control at the right time, Glomb added.

Read more: ChallengerAustralian UnityHelen MarsellaKerstin GlombKJB LawYvonne Chu
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