ATO releases its views on binding nominations in SMSFs

21 October 2008 Topics: Superannuation, Estate planning

Binding death benefit nominations are an integral part of many estate plans.

The ATO has released draft Self Managed Superannuation Funds Determination 2008/D1, which sets out its views on the ability of members of SMSFs to make a binding nomination.

The ATO confirms that the rules in the SIS Act and Regulations in relation to binding nominations do not apply to SMSFs.

This means SMSF members have much more flexibility to use binding nominations. For example, the ATO accepts that a binding nomination by a member of a SMSF does not necessarily lapse after three years.

It also follows that a binding nomination can cascade through different beneficiaries depending on who is alive, and can regulate the form the benefit is to take, as well as the recipient.

SMSFs are still bound by the payment rules in the SIS Act and Regulations. This means that the recipient designated in a binding nomination by a member of a SMSF must still be either a SIS law dependant or the estate of the deceased member.

It is important to be aware that the ability of a member of a SMSF to make a binding nomination will depend on the terms of the fund’s trust deed.

Clients and advisors need to carefully check the wording of the trust deed to ensure it allows for a binding nomination – particularly if the member wants to make a non-lapsing binding nomination.

Cooper Grace Ward has seen a number of recent trust deeds with issues in binding nomination provisions. In some cases, the deed does not actually permit the members to make a binding nomination as it limits the power by reference to the provisions of the SIS Act – which do not apply to SMSFs. Also many trust deeds do not allow for non-lapsing binding nominations.

Cooper Grace Ward is hosting a seminar on superannuation and estate planning on 29 October & 11 November where we will discuss these and other relevant superannuation issues. Learn more about our Superannuation seminars.

If you have any queries regarding Binding Nominations please contact a member of our Estate Planning team on (07) 3231 2444.

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This publication is for information only and is not legal advice. You should obtain advice that is specific to your circumstances and not rely on this publication as legal advice. If there are any issues you would like us to advise you on arising from this publication, please let us know.