Tuesday, February 27, 2018

BDBNs v reversionary pensions – it’s not enough to debate **

View by BDBNs v reversionary pensions – it’s not enough to debate by Matthew Burgess

Last week’s post (Scissors, paper, rock (you win again) – BDBNs v pensions **) considered the situation where there is a binding death benefit nomination (BDBN) in place for superannuation savings that are also the subject of a reversionary pension

As with many areas of potential conflict, the starting point for an answer to this type of situation will be the terms of the trust deed and pension documents.

In the absence of a clear answer in the legal documents (and as mentioned briefly last week), the Tax Office’s position appears to have been confirmed via a National Tax Liaison Group (Superannuation Technical Sub-group) in March 2010.

The minutes confirm as follows:
‘There are no SIS Act or SISR provisions that are relevant to determining which nomination an SMSF trustee is to give precedence where a deceased pension member had both a valid reversionary nomination and a valid BDBN in existence at the same time of the member’s death.

While section 59 of the SIS Act and Regulation 6.17A of the SISR place restrictions on superannuation entity trustees accepting BDBNs from a member, as explained in SMSF Determination SMSFD 2008/3, the Commissioner is of the view that those provisions do not have any application to SMSFs.

It must also be remembered that section 59 of the SIS Act and regulation 6.17A of the SISR are necessary because of the general trust law principle that beneficiaries cannot direct trustees in the performance of their trust.

The ATO’s view is that a pension that is a genuine reversionary pension, that is, one which under the terms and conditions established at the commencement of the pension reverts to a nominated (or determinable) beneficiary must be paid to the reversioner.

It is only where a trustee may exercise its discretion as to which beneficiary is paid the deceased member’s benefits and/or the form in which the benefits are payable that a death benefit nomination is relevant.’
** For trainspotters, ‘It’s not enough to debate’ is a line from a song named ‘Weenie Beenie’ on the first Foo Fighters album in 1995, listen here – https://www.youtube.com/watch?v=oI1xAkzHgXc

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Tuesday, February 20, 2018

Scissors, paper, rock (you win again) – BDBNs v pensions **

View blog Scissors, paper, rock (you win again) – BDBNs v pensions by Matthew Burgess

An issue that has been the subject of some debate over time is what takes priority where a valid binding death benefit nomination (BDBN) is in place, however the relevant member dies while in receipt of a pension which was established with a reversionary beneficiary.

Best practice dictates that both documents should ideally articulate which has priority, although often there is however ambiguity.

Where however there is limited guidance addressing the issue, it is generally accepted that the reversionary pension will take precedence over the BDBN.

The reasons for this include:
  1. A valid reversionary pension would automatically remove the deceased member’s death benefits from a fund, and therefore, any BDBN will have no assets to attach to. 
  2. The Tax Office has confirmed via its national tax liaison group committee that the preferred interpretation (subject to any specific provisions to the contrary) is that the pension does take priority. 
  3. Practically, in the client specific situations that we have seen, the approach adopted has always been that the reversionary pension takes priority. 
** For trainspotters, ‘You Win Again’ is song by legendary band the Bee Gees, learn more (including about mullet hair styles, circa 1987) here – https://www.youtube.com/watch?v=KZY9oYSSjFI

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Tuesday, February 13, 2018

(To be) specific asset BDBNs **

View blog - (To be) specific asset BDBNs by Matthew Burgess

As highlighted in previous posts, there are a myriad of issues that should be taken into account before a binding death benefit nomination (BDBN) will be held to be valid (see for example - http://blog.viewlegal.com.au/2012/02/superannuation-and-binding-death.html, http://blog.viewlegal.com.au/2014/03/death-benefit-nominations-read-deed.html, http://blog.viewlegal.com.au/2014/03/double-entrenching-binding-nominations.html).

One issue that can arise is whether a BDBN can apply to specific assets, as opposed to simply nominating a percentage of total assets, which is the standard approach for most nominations.

The generally accepted position seems to be that given there is nothing in the superannuation legislation that prevents distributing specific assets under a BDBN, so long as the trust deed for the fund does not prohibit it, the approach is permissible.

If a specific asset BDBN is desired, it will also be necessary to ensure practical issues such as the following are addressed –

  1. the relevant asset must be segregated to the account of the member making the BDBN;
  2. compliance with all aspects of the BDBN rules under the trust deed;
  3. the various issues that should be factored into any BDBN, including changes in the values of assets, the wider estate plan, what is to occur if the intended recipient predeceases the person making the BDBN and the revenue consequences; and
  4. finally, the scenario where the asset the subject of the specific asset BDBN is sold prior to the member’s death should also be contemplated.

** For trainspotters, ‘To be specific’ is a line lifted from the song ‘Fidelity Fiduciary Bank’ from Mary Poppins, see here – https://www.youtube.com/watch?v=XxyB29bDbBA

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Tuesday, February 6, 2018

When one is no more fun – another tip on changing trustees **

View blog When one is no more fun – another tip on changing trustees by Matthew Burgess

As highlighted in previous posts, there are a myriad of issues that should be taken into account in relation to any decision to change the trustee of a trust (see for example - Changing trustees of trusts – Simple in theory … not so simple in practice).

One critical issue under the Trusts Acts in most states is the rule that where there are two or more individual trustees appointed initially of a trust, the retiring trustees will continue to be liable unless replaced by:
  1. at least two individual trustees; or 
  2. a ‘trustee corporation’. 
For the purposes of these rules the ‘trustee corporation’ must be a formal trustee company, as opposed to a private propriety company.

Importantly, the trust instrument may override these rules and allow trustees to be discharged, even when replaced by a single trustee.

Often however trustees will be changed without the required permission in the trust instrument, completely ignorant of the Trust Acts rules, meaning the retiring trustees unknowingly continue to be liable.

For obvious reasons we therefore generally recommend an amendment to any trust deed that does not expressly override the Trusts Acts requirement, however this is approach is also subject to the standard mantra ‘read the deed’ as often deeds will not in fact permit this type of variation.

In situations where a variation is not permitted, one work around that helps in some (but unfortunately not all) states is to appoint (say) one individual trustee and a propriety company of which the individual trustee is the sole shareholder and director.

** For trainspotters, ‘More Fun’ is song by legendary Australian band Radio Birdman, learn more here – https://www.youtube.com/watch?v=xcZc5d0Wnws

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