Reversionary pension nominations and BDBNs

Read the full article in Taxation in Australia: Digital Edition
A member who has made a Binding Death Benefit Nomination (BDBN) who subsequently commences a pension with a reversionary nomination has effectively varied their BDBN, and the BDBN may be undermined.
Under the ATO’s view, set out in TR 2013/5, a member’s pension ceases for tax law purposes on their death unless an eligible dependant is automatically entitled to receive the pension as a reversionary beneficiary.

A nomination will broadly fail to satisfy the ATO’s strict standard of reversion if any element of discretion arises under the governing rules of the fund in relation to the death benefit.

This means, among other things, that the 12-month deferral in the timing of the credit to the recipient’s transfer balance account will not be available.

Naturally, a binding direction in relation to a member’s death benefits can be recorded in various ways.

For instance, nominations in relation to death benefit pensions are commonly recorded in pension commencement documents, reversionary pension nominations and binding death benefit nominations (BDBNs).

Each of these documents, if appropriately drafted, can broadly be used to bestow (or in some cases, remove) reversionary status on a pension, subject to the terms of the self-managed superannuation fund (SMSF) deed.

But the question must be asked: what happens when there is a conflict or inconsistency between a member’s BDBN and what is set out in their pension/nomination documentation?

In their article in the June issue of Taxation in Australia, William Fettes and Daniel Butler, CTA, (both DBA Lawyers) outline the key considerations for SMSF members and advisers.

The article asks, are the documents binding or otherwise legally effective?, and does the documentation satisfy the ATO’s standard for automatically reversionary pensions?

It also looks at appropriate powers in the SMSF deed, inconsistencies or conflict between documents, and if an ARP nomination defeat a BDBN.

Members can access their Taxation in Australia journal online, anywhere, anytime, in an all-new digital format.

In line with how you work in this digital world, you can now access the journal wherever you are, with a host of new added features and functionality.

Read the full article now by accessing your digital issue of Taxation in Australia.

Written by practitioners for practitioners, Taxation in Australia is continually ranked as Australia's leading tax journal.

Published 11 times per year and available exclusively to members in an all-new digital format, this comprehensive publication features articles with a strong, practical approach to the latest tax issues and professional development.

Not a member?
Find out more about the benefits membership of The Tax Institute can deliver for your role.

Comments

Popular posts from this blog

Div 7A: Issues when dealing with loans and unpaid present entitlements

July's tax developments - in depth

The biggest changes in estate planning in a generation