Have you been ‘given’ a valid BDBN?

Advisers must be aware of their duties and obligations to the trustee, the member and/or the beneficiaries of that BDBN.

Practitioners should be fully cognizant of whether or not they hold a binding death benefit nomination on behalf of an SMSF member.

By Rod Jones, partner Piper Alderman

Advisers involved with clients’ estates should carefully consider the Supreme Court of South Australia’s finding involving a self-managed superannuation fund (SMSF) trustee company, Cantor Management Services.

The decision highlights the need for practitioners to be fully aware to what extent they hold, or do not hold, a binding death benefit nomination (BDBN) on behalf of a self-managed superannuation fund member. They must also be aware of their duties and obligations to the trustee, the member and/or the beneficiaries of that BDBN.

The case involves Cantor Management Services Pty Ltd (CMS), the trustee of the Cantor Management Superannuation Fund (SMSF). In 2012, its sole member, Malcolm Cantor, completed a BDBN in favour of his “Legal Personal Representative”.

Subsequently, in his will, he appointed his cousin Dr Susan Booth as the executor of his will.

Death of client

Cantor died in April 2013. It was agreed that the registered office of CMS was the office of Victorian firm Doyle Timms Accountant, and that at all relevant times they were also the accountants of Cantor and CMS.

After signing, and having the BDBN witnessed in their offices by at least one, and probably two Doyle Timms accountants, the BDBN was left in the possession, management and control of the firm.

As the deceased resided overseas for much of the year, he appointed his brother Christopher Cantor as his attorney and the sole director of CMS. The most significant asset of the SMSF was an industrial property in which a company controlled by Christopher had an under market value tenancy.

Christopher, as the director of CMS, contended that the BDBN was not given to CMS, and therefore not valid, unless and until Doyle Timms:

  1. took possession of it for and on behalf of CMS;
  2. had in some way kept it with the documents which Doyle Timms held as the accountants for CMS; and
  3. in effect, Dr Booth, as the Legal Personal Representative, could not act on the BBDN.
The evidence did not show where Doyle Timms kept the BDBN because no evidence was put to the court from any principal or employee of Doyle Timms as to where it was filed. The court considered that this “ritualistic process” of internally transferring it from themselves as Cantor’s accountant to themselves as CMS’s accountant was not required.

Given to the trustee means …

Clause 50.4 of the SMSF deed provided that “…A Member who has given a Beneficiary Nomination to the Trustee may ...”, amend, revoke or replace the nomination form. The question for the Appeal Court concerned the construction of the phrase “given to the Trustee” and its proper application to the facts of the case.

In deciding that the BDBN was valid and had been given to CMS, the court gave consideration and weight to section 109X of the Corporations Act. This is where a document may be served on a company by leaving it at, or posting it to, the company’s registered office.

While section109X was not incorporated into the SMSF deed, that section does not impose any obligation on a corporation, but rather facilitates the process of service and effective delivery of notices to the company. The court noted that the centuries-old practice of service on the registered office informs the construction and application of the phrase “given to the Trustee” by a member of the SMSF.

Professional Development: A practical guide to death benefit nominations: identify the mechanisms available to direct superannuation benefits in the event of death, and discuss the implications of death benefit nominations.

Keeping the BDBN safe

The court’s view was that the word “given” should be given its ordinary meaning and a practical application. It held that after signing the BDBN, Cantor left it in the possession, management and control of Doyle Timms. They were at that time accountants of both the deceased and CMS, their place of business being also the registered office of CMS.

The Court rejected the contentions of CMS, and that it was not necessary for Dr Booth to show how or where Doyle Timms filed the form. It held that the accountants who witnessed the execution of the BDBN took possession of, and filed it, for the purposes of both CMS and the deceased and were duty bound to keep the BDBN safe for, and had brought it to the attention of, its client, CMS.

This case has been touted for the advantages of having a corporate trustee, that it gives comfort to trustees and their advisers by the use of a registered office. Putting aside whether it is appropriate for a SMSF deed to prescribe a BDBN notification or service requirement, the case does amplify the need for precise wording and practice procedure that complies with the deed.

Practice procedures should be reviewed

This case should cause advisers whose own offices are the registered offices of a SMSF corporate trustee to review their practice procedures to ensure that:

  • If requested to witness a BDBN, practitioners should carefully consider the requirements and wording prescribed by the SMFS deed and whether in fact it is legal and not accounting advice that is being sought by the member.
  • If they agree to retain the BDBN, and the SMSF deed requires it to be given or served upon the trustee, to then give notice (preferably written) to the corporate trustee and to safely retain the nomination form.
  • If the SMSF trustee is an individual, they should be aware that there can be no registered office under the Corporations Act. Therefore, this decision cannot give comfort or mitigate against the risk of non-service of a BBDN, and of disappointed nominated beneficiaries, if the SMFS requires the “giving” or service of a BDBN on the trustee and the adviser agrees to retain the document.
  • Practitioners should query the practice’s risk exposure by assuming those obligations to both trustees and beneficiaries and the fallout from failing to give effect to any deed provision requiring service of a BDBN upon trustees.
Rod Jones is a succession and trusts practitioner in Piper Alderman’s Private Client Services team. The opinions expressed here are his own.

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