SMSF Binding Death Benefit Nominations

The ATO has just released a draft SMSF Determination dealing with Binding Death Benefit Nominations  (SMSFD 2008/D1 – released 10 September 2008) for public comment.

The considered, but not final, view of the ATO is that the requirements that Binding Death Benefit Nominations be valid for only three years, and must be witnessed by two disinterested witnesses, do not apply to SMSFs.

Consequently, to quote the Draft Determination, “the governing rules of SMSFs may permit members to make death nominations that are binding on the trustee, whether or not in circumstances that accord with the rules in regulation 6.17A”.  (Regulation 6.17A imposes the requirements for 3-year validity and two disinterested witnesses).

“However, a death benefit nomination is not binding on the trustee to the extent that it nominates a person who cannot receive a benefit in accordance with the operating standards in the SISR”.

Townsends Business and Corporate Lawyers, the legal advisers to SUPERCentral, has always been of the view that the three year and witness requirements did not apply to SMSFs (unless the governing rules of the SMSF specifically introduced those requirements) and the template SUPERCentral Death Benefit Nominations documents have been drafted to reflect this view.

Flexibility in drafting Death Benefit Nominations will increasingly be seen as a particular advantage for SMSFs and forms the basis of SMSF Wills.