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Tips and Advice

Binding death benefit nominations – what you definitely need to know

When a member of an SMSF dies, they generally believe that the remaining trustees will direct any benefit as intended.

However, this is not necessarily the case.

The only way that a member can be certain their benefits will be paid the way they intend, is if they have made a valid binding death benefit nomination (BDBN). If this does not exist, payment will be at the discretion of the surviving trustee(s).

In considering making a BDBN, a member should consider the following:

  • the trust deed for the superannuation fund should specifically allow for the making of BDBNs (if it does not, any BDBN that the member makes may not be valid);
  • superannuation benefits on death generally can only be paid to one or more "dependants" of the member as defined in the superannuation legislation (which includes a spouse or child), or to the member's legal personal representative to be dealt with according to the member's Will;
  • that any BDBN that they make does not conflict with any arrangements already in place with their superannuation (such as a reversionary pension that is already being paid); and
  • a BDBN may be drafted to provide for benefits to be paid either as a lump sum or as a pension (or both), (although a member's superannuation death benefits generally cannot be paid as a pension to the member's child).

Further, members of superannuation funds also should be aware that:

  • Theirsuperannuationbenefitsgenerallydo not form part of their estate to be dealt with according to their Will; and
    Superannuationlegislationrequiresthata deceased member's benefits be paid out of the fund "as soon as practicable" after their death.

A member's personal situation can have a bearing as to whether or not to use a BDBN, as can the structure and relationship of fellow trustees.

Therefore, BDBN arrangements are generally not a "one-size-fits-all" situation and should be an important part of discussions with your clients about their intentions.

Super Stream contribution standard and SMSFs

SuperStream is a government initiative that is aimed at improving the efficiency and transparency of the superannuation system.

It does this by requiring all employers and funds (including SMSFs) to comply with minimum payment and reporting obligations in relation to employer contributions.

These requirements are set out in the Superannuation Data and Payments Standards 2012 (the 'Standard').

Broadly, in relation to contributions, the Standard has imposed the following obligations on employers and superannuation funds (including SMSFs), generally from 1 July 2014:

  • Employers must make contributions on behalf of employees by submitting payments and data electronically (to a superannuation fund) in accordance with the Standard; and
  • Funds must receive employer contributions and data electronically, as per the Standard.

The new SuperStream Standard does not apply to employers and SMSFs in relation to employer contributions that are made to an SMSF by a 'related party' of the fund (as defined in the superannuation legislation). This means that contributions made to an SMSF by a related employer are exempt from the SuperStream requirements and can be made using existing processes (e.g., by cheque).

The general start date of 1 July 2014 is subject to transitional rules, so that the date for SMSFs to be fully compliant depends on the size of the employer contributing to the fund, as follows:

  • (a) Employerswith20ormoreemployees ('medium to large employers') – these employers (and the relevant SMSF) now have until 31 October 2015 to be fully compliant.
  • (b) Employers with 19 or fewer employees ('small employers') – SMSFs that receive contributions from small employers must start using SuperStream from 1 July 2015. Note, the ATO has allowed small employers (and SMSFs) until 30 June 2016 to be fully compliant.

However, if the contributing employer complies with the Standard early, then the SMSF must also comply by the earlier date, otherwise the employer may have to redirect contributions for a member to the employer's default fund.

SMSF trustees are required to comply with the Standard to the extent that it applies to them. Failure to do so may result in penalties being applied.

Detailed advice should be sought as required in relation to these measures to ensure compliance.

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