A self-managed superannuation fund (SMSF) deed that states that pension documentation will override a binding death benefit nomination (BDBM) can cause advisers and other non-lawyers to bear significant legal risks, DBA Lawyers warn.
In an analysis, DBA Lawyers special counsel Bryce Figot and director Daniel Butler, said there was a misconception that reversionary pension documentation would always apply before a BDBN.
“If the SMSF deed is silent on the question, it can be entirely possible at time that the BDBM will apply before any reversion pension documentation. The reasoning is to do with several often overlooked laws,” the analysis said.
“If the SMSF deed provides that reversionary pension documentation overrides any BDBN, that may well be the case for that particular SMSF. However, that might not be in anyone’s best interests, and could result in significant liability for advisers.
“Ultimately, what matters is what a judge thinks.”
The analysis pointed to laws that stated trustees should not decide today how it would exercise that discretion in the future as that would render the decision “unenforceable”.
It said most SMSFs deeds drafted in the last 20 years had provisions allowing a member to bind a trustee’s future discretion pursuant to a BDBN. But there were a lot more variability and vagaries as to what SMSF deeds might provide regarding reversionary pensions.
“If a specific SMSF’s deed provides that pension documentation overrides any BDBN, that might well be the case for that specific SMSF. However, we ask whether such a provision is in anyone’s best interests,” the analysis said.
Figot and Butler warned advisers and other non-lawyers of limitations.
“With a proper product disclosure statement, disclaimers, warnings and file notes, it may well be possible for you as a non-lawyer to:
- Determine whether your client is giving you properly informed instructions; and
- Act as a ‘mere scribe’ and populate a template.
However, even then you would be well advised to recommend the client have these documents settled by their estate planning lawyer,” they said.
The analysis said as things became more complex it was extremely risky to proceed without a lawyer providing the “ultimate advice” and the “ultimate ‘sign off’” in respect of the pension documentation and the BDBN.
“If you are a non-lawyer and you are involved in documentation attempting to direct that, for example, some pension is paid one way upon death (eg, to a spouse) and accumulation benefits are paid another way (eg, to an estate) you should adopt the absolute highest level of caution,” it said.
“You should be extremely reluctant for the ‘buck to stop’ with you or your firm. To properly implement this situation almost certainly constitutes engaging in legal practice and it should a lawyer who bears the final risk (if for no other reason, the lawyer — unlike you — will be covered by appropriate insurance for legal work).
“It is incorrect to believe that pension reversion documentation will always override BDBNs. Ultimately though the SMSF deed will play a very important role.”
