Lapsing, Non-Lapsing Binding Death Benefit Nominations

20 Sep 2023

Written by

David Busoli, Principal

I recently reviewed an SMSF deed for a fund containing a non-lapsing binding death benefit nomination for a member. At least that’s what they thought.

The problem was that the deed was of a type that automatically updates (not a bad thing if worded carefully) by prefacing most sections, including that pertaining to binding death benefit nominations, with the statement “according to law” or “in accordance with statutory requirements”. This causes a problem as determined in Donovan v Donovan.

Ronald Donovan died with a ‘binding death benefit nomination” executed in favour of his Estate which included, as beneficiaries, his children from a previous marriage. It was challenged by his surviving spouse who wished the benefit to remain in the SMSF and subject to her control.

Because the deed linked a BDBN to the statutory requirements (SIS Reg 6.17A), which were not complied with, the wife was successful. This matter did not involve the 3-year term of a BDBN but, as this is also included in the regulation, a deed of the type I reviewed is unable to offer a non-lapsing binding death benefit nomination – even if the nomination says otherwise.

As usual, the devil is in the detail.

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