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A checklist for a healthy financial year

A year may not seem like a long time, but a lot can happen in 365 days. Since last February, you may have changed jobs, received a raise, gotten married or divorced, brought home a baby or had one of your kids move out of home.

       

 

A yearly financial checkup can ensure that your financial plans are in tune with your life. It doesn’t need to take long. You can do a big-picture review quickly and save follow-up tasks for later, start now if you have 15 or 30 minutes, or pin this list on your fridge or at the top of your to-do file to get 2019 off to a profitable start: 

  • Add up your assets, including your super and other investment and savings accounts, and your liabilities such as your mortgage or car loan. Can you access all those accounts easily? That is, do you know the account numbers for each and where the password is if you have online access?
  • Figure out whether your net worth (assets minus liabilities) is growing or shrinking. Ideally, your assets should be growing and your liabilities shrinking. If that’s not the case, figure out why. You may have a good reason, such as making a down payment for a house with a mortgage that increased your liabilities. But if the reason is not positive, decide whether you need to change anything to get those numbers heading in the right direction.
  • Review big changes in the last year that may affect your finances. For example, if you got a raise, consider directing some or all of it into your super or another investment. If you had a child, you may want to start saving for university or review your insurance to determine whether your coverage is still appropriate. Do you need to change beneficiary designations on any accounts?
  • Consider rebalancing your portfolio to make sure your investments continue to be aligned with your financial goals. Your asset allocation – the amount of your portfolio dedicated to shares, bonds and cash – should be diversified according to your goals, age and risk tolerance. The ups and downs of financial markets may put your allocations out of whack. Selling assets that have appreciated and reinvesting in those that have fallen in proportion to your overall portfolio can restore your desired allocation and reduce your vulnerability to a decline in a single asset class.
  • Take a look at your budget. Is your spending aligned with your income and your personal goals? If you don’t have a budget, create one. You don’t have to track every gold coin unless you want to, just be sure you capture the majority of your expenditures. If you want help, you could try out some popular budgeting apps.

Now, make a list of follow up tasks, and you're on your way.

 

Written by Robin Bowerman
Head of Corporate Affairs at Vanguard.
19th Feb 2019
Vanguardinvestments.com.au

Tax and estate planning traps flagged with pension restructures

While the ATO has previously stated that changing a pension to reversionary after it has been commenced is generally fine where the deed allows it, it may be safest to stop and restart the pension, says a technical expert.

           

 

Cooper Partners head of SMSF and succession Jemma Sanderson explained that clients who specifically want a reversionary pension for estate planning purposes but already have a non-reversionary pension may be wondering if they can make it reversionary in situ.

“It really depends on the deed. The ATO has indicated that they suspect that it would be okay if the deed allowed it,” Ms Sanderson told delegates at the SMSF Association Conference last week.

“Now I probably take a more conservative view and would want the original terms and conditions of a particular pension to state that it’s reversionary. So, I would want to stop a pension and restart it.”

Ms Sanderson cautioned that stopping and restarting a pension can have its own issues, particularly if the client has substantial accumulation accounts and multiple pensions in place which were kept quarantined from a tax component perspective.

“You certainly wouldn’t want to muddle the 100 per cent tax-free pension back into accumulation, which is mainly taxable component, to then start a new pension that’s reversionary because you then muddle up those tax components,” she said.

“The tax component quarantining is purely from an estate planning perspective so that the kids don’t pay as much tax.”

Some clients, she said, might be more concerned that their pension is or isn’t reversionary than saving their adult children some tax down the track.

“Everyone is going to be different, and you need to see what their appetite is and exactly what it is they want to achieve before restructuring any of those things,” she said.

Some people have a preference for reversionary pensions, she said, because it gives them 12 months to deal with it before it becomes a transfer balance credit on the reversionary beneficiaries’ own account.

“Over that period of time, you then make the decision about what you do; you can’t roll that reversionary pension back into accumulation for the beneficiary, but they can roll their own pension account into accumulation,” she said.

“So, you can keep as much money in super as possible, which tends to be the intention, but for others it may be to take it out and pay off some debt.”

She said that it is important to note, however, that for non-reversionary pensions, it is still possible to get the 12 months or potentially even longer, because it only needs to be dealt with as soon as practicable.

“From a practical perspective, where we’ve seen reversionary pensions in practice and someone has died, it has been a real pain to get an interim balance at the date of death, rather than dealing with it all at the next 30 June, because the next 30 June makes a lot of sense and you can draft paperwork appropriately to deal with that account at that date,” she said.

“So, the biggest difference between a reversionary account, and a non-reversionary account, is the transfer balance credit that arises in a beneficiary’s transfer balance account.”

If it’s reversionary, then it will be the value at the date of death; if it’s not reversionary, then it’s the value at the date you deal with it, she said.

“There could be a vast difference there. You could have investments that absolutely kill the pig or up substantially go up in value over that 12-month period, but there could also be a detriment, if [it] goes down over that time, so you need to assess that on a person-by-person basis,” she explained.

“Obviously, you’re making a decision about whether a pension account is reversionary when the person starts it, not by the time that they’re passing away. You just need to be really careful about how all of that works.”

 

Miranda Brownlee
25 February 2019
smsfadviser.com

 

Extra website resources and tools is one way we offer you and your family more.

The following are available via our website and are not often available in the one place.  All can save you time and effort.  *

           

 

24/7 access to website-based tools and resources you, your family, your friends, colleagues and associates can all benefit from.

  • Latest News. 6-8 new articles every month and chosen from over 25 for their relevance. This means our website is a great place to stay informed.
  • Videos that are relevant, interesting, educational and interesting to watch. Videos that are regularly changed for another collection to ensure you’re able to lean about a significant number of related issues throughout the year.
  • Ask a question at any time. If you have a question on any related topic then don’t hesitate to use a form on our site to ask.
  • Comprehensive financial tools and calculators to help you better understand your personal or family Cash Flow position or simply complete a Budget or work on some Superannuation scenarios.
  • Research your questions. Use eWombat for doing this research by simply typing in keywords or phrases. Great and quick for searching sites like the ATO, Centrelink and ASIC.
  • Your information is private and confidential and should be treated that way. Using Secure File transfer or a Secure Client Portal means your information and plans are encrypted when sent in either direction over the Internet.
  • ASX Prices and Charts. Many sites will have these resources to allow you to quickly see how the market is going and check any stocks you’d like a price on. All such information is, though, delayed by 10 minutes.
  • Many sites also have a message window feature that displays messages of interest or that cover topics and deadlines you should be aware of.

* Not all are on every site.

 

Your Accountant

ATO identifies SMSF contravention red flags

The ATO has identified certain red flags and problem areas with SMSFs that will attract its attention, ahead of tax time 2019.

         

 

ATO assistant commissioner Dana Fleming said that the ATO received a total of 16,909 regulatory contraventions for 8,215 SMSFs in the 2018 financial year.

This financial year so far, there have been 8,412 regulatory contraventions for 3,549 SMSFs.

“The most common contraventions are related-party loans, loans to members, in-house assets, investing in related-party assets and separation of assets where members are not keeping their personal assets separate from the assets of the SMSF,” Ms Fleming said.

“Together, these top three account for more than 50 per cent of the contraventions reported to us and are the common repeated contraventions that we see.”

Contraventions relating to loans accounted for 21.1 per cent, in-house assets accounted for 18.7 per cent and failure to keep assets separate represented 12.8 per cent.

While the highest number of contraventions were for related-party loans, the contraventions relating to in-house assets and separation of assets represented the greatest value, she said.

“Contraventions also revolved around growing wealth in the SMSF environment and trying to access the low tax rate. Poor record-keeping is often a culprit here,” she said.

Some of the other contravention categories listed by the ATO related to administrative errors, sole purpose breaches, borrowings, operating standards and acquisitions of assets from related parties.

The main drivers of these contraventions, she said, tend to be financial stress and the ease of accessibility with SMSFs in terms of accessing assets and dollars and poor record-keeping to substantiate transactions.

In the 2017–18 financial year, there were a total of 257 trustees disqualified, Ms Fleming said. Enforcement actions including direction to rectify, enforceable undertakings and notice of non-compliance were taken for 180 trustees.

In this financial year so far, 75 trustees have been disqualified, she said.

 

Miranda Brownlee
01 March 2019
accountantsdaily.com.au

 

Investors brace for Brexit – deal or no deal

When people in the UK woke up on 24 June 2016 to the news that the country had voted to leave the EU (or “Brexit” as it is now commonly known), little did they know that 2.5 years later, the future of the UK's relationship with Europe would still be unclear. As debate and negotiation continue, what should investors do?

       

 

The narrowly won vote to leave the EU after 46 years of membership was mainly motivated by concerns about unrestricted immigration of EU citizens into the UK, the relative lack of sovereignty over decision-making that EU membership entailed and the ongoing financial cost of being a member. The broader economic consequences of this change were perhaps less well understood. Most economists agree that the economic impact is likely to be negative, with GDP falling due to the less advantageous terms on which the UK will be able to trade with its nearest neighbours. The UK's terms of trade will also likely deteriorate (as they have already with the fall in sterling since 2016), meaning imported goods and services will tend to be more expensive. There may also be long-term costs once the UK becomes relatively less open to the flow of people and ideas that can stimulate growth.

So far, there is some evidence that the uncertainty surrounding Brexit has caused firms and households to defer spending plans until the situation is clarified, while overall UK growth seems to have fallen behind G7 peers over the last two years. But looking forward, the seriousness of Brexit's impact on the UK economy will depend on the terms of the eventual deal between the UK and the EU. This is what the negotiations have been about since the government triggered Article 50 in March 2017.

Almost certainly, the worst outcome all round would be for the UK to leave the EU without any deal at all, though we believe this is relatively unlikely. This might occur if the current lack of agreement in Parliament on how to proceed continues. No Deal would be the “hardest” type of Brexit on offer, involving the UK moving on to World Trade Organisation trading arrangements with higher tariffs and more restrictive movements on goods across borders, as well as the lapsing of other UK-EU arrangements.

We believe it is more likely that some kind of deal with the EU will be reached, probably involving a type of free trade arrangement with minimal tariffs on trade in goods with the EU but no harmonisation of standards as occurs in the European Single Market. This would probably be costly for the UK economy and still constitute a moderately “hard” Brexit. Less costly would be some variant of a so-called “soft” Brexit. This could be achieved by staying in the customs union with the EU, though this prevents signing trade treaties with non-EU countries, or joining some variant of the European Economic Area (sometimes called the Norway option). Either of these options would be much less costly in terms of economic impact but neither would realise many of the possible benefits of leaving the EU, since the UK would not be able to curb EU immigration and would need to continue to pay into the EU. For now, so long as No Deal is avoided, as we expect, no new trading arrangements would come into force until after they had been agreed during a transition period lasting until the end of 2020.

The reality is, however, that no political consensus has been reached within the UK nor between the UK and EU on what rules should apply. One particular stumbling block has proved to be the treatment of the border between Northern Ireland and the Republic of Ireland, which post-Brexit will form a land border between the UK and the EU. Indeed, the inability to reach agreement has increased the possibility that the 29 March deadline will be extended and even that a new referendum might be called which could potentially reverse the original decision and lead to the UK staying in the EU after all.

So how should investors respond to all of this Brexit uncertainty? So far, the exchange rate has borne the brunt, falling around 10% since the referendum; UK equities have probably been slightly weaker than would have been expected, while UK fixed income has probably been more robust as the Bank of England policymakers have held off raising interest rates. If No Deal is taken off the table, it seems likely that sterling assets would rally slightly, even more so if Brexit were reversed altogether. But the threat of a hard Brexit or even No Deal still means there are downside risks to UK assets. In the absence of a crystal ball, the case for a well-balanced globally diversified portfolio of stocks and bonds is as strong today as ever. Far better to watch the news as an interested citizen than as a trigger-happy investor!

 

Peter Westaway
Chief Economist, Vanguard Europe
25 February 2019
Vanguardinvestments.com.au

 

When super isn’t compulsory

As Australia’s $2.8-trillion super system attracts even more headlines than usual, more people may mistakenly assume that almost everyone in the workforce is covered by at least compulsory contributions.

         

 

In reality, the position is far different.

A research paper* from the Association of Superannuation Funds of Australia (ASFA) reminds us that a “substantial proportion” of Australia’s workforce is self-employed and therefore does not receive superannuation guarantee (SG) contributions.  

In other words, they are out in the super cold – unless they are among the small minority of the self-employed who make voluntary contributions or who have built-up some super savings from past employment.

Based on Australian Bureau of Statistics data, ASFA’s paper points out that 1.267 million people or about 10 per cent of our total workforce, as at August 2017, were owner-managers of unincorporated small businesses as their main occupation.

And the percentage of the workforce that is self-employed and uncovered by compulsory super contributions is expected to rise with the seemingly-relentless growth of the gig economy.

Here’s another key statistic. Some 20 per cent of the self-employed have no super whatsoever compared to 8 per cent of employees.

Critically, any super held by the self-employed is often extremely small, arising from whenever they have been classified as employees and eligible for compulsory contributions. Often, their modest super savings arise from the time they first joined the workforce and from occasional employment.

It seems paradoxical that the self-employed are among the most enthusiastic supporters of self-managed super when the majority of the self-employed have little or no super.

What can a self-employed person take to make that they don’t miss out on super? Here are a few tips:   

  • Try to make regular contributions as if employed: Think about making contributions that are at least the equivalent of the compulsory contributions you would have received if employed. (The superannuation guarantee rate is currently 9.5 per cent of an employee’s ordinary earnings up to a maximum salary amount.)
  • Claim a tax deduction for concessional contributions: The self-employed can claim tax deductions for their concessional (before-tax) contributions. The annual concessional cap for all eligible super fund members is $25,000. (Concessional contributions comprise compulsory contributions, salary-sacrificed contributions and personally-deductible contributions by eligible self-employed individuals and investors.)
  • Contribute early, contribute often and contribute as much as you can afford:  By following this disciplined approach, you will reduce the chances of being left behind employees with your super savings.
  • Look for opportunities to contribute more: If you receive, say, an inheritance or sell a non-super investment, consider contributing some of the money to super within the contribution caps. (The standard non-concessional, after-tax, contributions cap is $100,000 for 2018-19. Fund members under 65 have the option of contributing up to $300,000 in non-concessional contributions over three years, depending upon their total super balance.)  
  • Think carefully before cutting your contributions if cash is tight: A temptation for the self-employed is to cut super contributions if business cash-flow becomes tight. Consider the long-term implications for your retirement savings of reducing your contributions; there may be other ways for your business to save money.
  • Don’t overlook the insurance side of super: Most Australians with life and permanent disability insurance obtain at least default cover through their large super funds. And many of the self-employed also choose to hold income-protection insurance through their funds.
  • Aim to obtain asset protection with super: Self-employed business owners sometimes seek advice about how their super savings may be protected in the unfortunate event of a future bankruptcy – subject to claw-back provisions in bankruptcy law.
  • Watch for a gig-economy super trap: Understand that employers are not obliged to make super guarantee contributions for employees earning less than $450 a month before tax. This means, for instance, that employees making up their incomes doing a number of part-time jobs for different employers may fall below the threshold for each.
  • Guide young family members towards super: If you have young family members working in the gig economy, perhaps in a series of part-time jobs, consider talking to them about the benefits of making voluntary super contributions.

Most of us have probably heard a self-employed business owner say “my business is my super” or similar words. Their expectation is often to eventually sell their businesses to raise enough capital to finance their retirement. But how realistic are those expectations?

As a past ASFA research paper points out that while some of these businesses may have a value of “a million dollars or more”, others may be worth may worth “little more than the market value of a second-hand utility or truck and some tools of trade”.

*Superannuation balances of the self-employed by Andrew Craston, Association of Superannuation Funds of Australia, 2018.

 

Written by Robin Bowerman
Head of Corporate Affairs at Vanguard.
05 February 2019
vanguardinvestments.com.au

 

New Year resolutions – New Year strategies

Here’s some good news for investors. With a few straightforward New Year resolutions and strategies, they can become better investors and better managers of their personal finances.

 

Key aims should be to save more, become better at handling inevitable market volatility, overcome investment inertia, reduce your debt and make sure you are following the fundamentals of sound investment practice.

Here are six New Year resolutions and strategies to think about:

Become a more disciplined, volatility-resilient investor: The higher share market volatility marking the final few months of last year and the beginning of 2019, highlights once again why investors should develop strategies to cope with volatility.

Block out market “noise”. Make sure you don’t overreact to daily market commentary and news, ignore short-term fluctuations in share prices and don’t get distracted by the rollercoaster emotions of the investment “herd”. Critically, set and adhere to an appropriately diversified asset allocation for your long-term portfolio – and monitor regularly particularly if your circumstances change.

And don’t try to time the market by attempting to pick the best times to buy or sell shares – typically market-timers sell after prices have fallen only to buy back after prices have risen.

When share prices sharply fall, investors often feel a hard-to-resist urge to do something when the best course is often to do nothing.

Increase your super contributions: Are you making the highest salary-sacrificed and tax-deductible contributions that you can afford? If not, consider increasing contributions from the beginning of 2019. The concessional (before-tax) contributions cap for all eligible super fund members is $25,000. Increasing your super contributions is a great beginning to breaking through the investment inertia that often gets in the way of investment success. (Concessional contributions are compulsory, salary-sacrificed and personally-deductible contributions.)

Cut your investment costs: This is one of the most straightforward ways to improve your chances of investment success in 2019 and beyond. Every dollar less paid in investment costs, including investment management fees, is a dollar more to invest.

Cut your debt: With Australia’s household debt at a record high, most of us have a powerful motivation to reduce our debts. In short, the more you are spending on paying back personal debt and on loan interest, the less you have left to invest and reach other goals such as eventually owning a debt-free home.

Control your credit card: A fundamental way to reduce debt in 2019 is to keep your credit card under tighter control. Aim to pay off your total credit card bill each month to avoid any interest and think about reducing your card’s credit limit. The typical Christmas splurge on credit provides an extra incentive to rein in credit card debt from early in in 2019. And consider the increasingly-popular alternative of having a debit card instead of a credit card. With a debit card, you can spend only your own money.

Boost your mortgage buffer: By making higher repayments on your home loan than required, you can build a mortgage buffer to help handle possible future financial setbacks and rate rises. And a mortgage buffer may enable you to pay off your home sooner. The Reserve Bank has noted in the past that many mortgagees have taken advantage of low interest rates to build their mortgage buffers.

Be sure you are not being unrealistically ambitious with your resolutions, and not setting yourself up to fall short.

Have a prosperous New Year.

 

Vanguard Investments Pty Ltd
15 January 2019

 

How Australia is performing.

         

 

An up-to-date snapshot of Australia's vital statistics.  

Please click on the following link to see all this interesting information. The areas covered are:

  • Overview
  • Markets
  • GDP
  • Labour
  • Prices
  • Money
  • Trade
  • Government
  • Business
  • Consumer
  • Housing
  • Taxes
  • Climate

 

Access all this data here.

 

tradingeconomics.com

Case law points to ‘growing importance’ of SMSF document chain

Another thing SMSF Trustees need to be aware of.

         

 

A raft of recent court cases has drawn greater attention to the importance of ensuring each of the documents in an SMSF’s document chain links up correctly, says an industry consultant.

Speaking in a recent webinar, Smarter SMSF chief executive Aaron Dunn said that, each and every year, there is an ever-increasing flow of case law around things such as the payment of death benefits which has highlighted the importance of getting the fund documents together.

While historically the focus has been on whether binding death benefit nomination (BDBN) is valid or invalid, or binding or non-binding, more recent cases studies have started to focus more on the SMSF documents in the chain.

“They’re looking at things like the deed update, the changes to trustees and the pension documents,” Mr Dunn explained.

“The courts are making it very clear that if you don’t have that chain linked and linked correctly, you are going to expose the current set of information as potentially being null and void, and therefore when the court ultimately makes its decision, it may go back to old deeds or whatever that would be referred to as the operative deed.”

Mr Dunn said the courts are not only looking at the update in respect of the trust deed, but may also look at changes that would be made to trustees and therefore who had the right to potentially make those decisions if the appointment of an individual did not occur properly as well.

Last year saw litigation cases such as Cam & Bear Pty Ltd v McGoldrick, said Mr Dunn, which were taken against SMSF professionals in respect of the recovery of losses where the investments went into bankruptcy and liquidation.

This case means that the SMSF sector is becoming more litigious and that there are significant implications for auditors when they review documents for certain investments.

The Re Narumon case was one of the biggest cases about SMSF documents in the past year, and provided a lot of clarity to the sector.

“It provided some really important clarity from the courts in dealing with whether the documents were effective or not and also whether the trust deed updates and variations that were done throughout the period were valid,” he said.

“It also looked at whether the reversionary pension was on foot or not, because we had a set of circumstances whereby John Giles, the trustee, couldn’t find the pension documents, so they were lost, so therefore the question of whether the pension was on foot or not had to be determined by the courts.”

The case also looked at whether the binding death benefit nominations were in essence defective.

“They were only partially defective, but again, for the first time, we needed to know whether the nomination was void in full or whether the part that could not be paid to a non-tax dependent and non-SIS dependent would mean that the whole BDBN was void or not,” Mr Dunn explained.

 

Miranda Brownlee
30 January 2019
smsfadviser.com

 

Common BDBN ‘pitfalls’ flagged in wake of ASIC action

An industry law firm has identified some of the common traps with BDBNs that can land advisers and their clients in trouble.  One example being a recent case of incorrect witnessing of binding nominations.

       

 

DBA Lawyers director Daniel Butler said that while binding death benefit nominations (BDBNs) can be a powerful and important tool for a member’s succession planning, they are still a relatively new legal instrument, with the law still continuing to develop and evolve over time.

“Cases such as Munro v Munro [2015] QSC 61 and Wooster v Morris [2013] VSC 594 show that effecting a valid BDBN is no simple task,” Mr Butler warned.

“More specifically, as BDBNs are a creature of the particular deed, the process of effecting a valid BDBN depends on a number of interrelated factors.”

SMSF deeds that include BDBN provisions from the SISA and SISR through wide deeming provisions of regulatory compliance are one of the key problem areas, Mr Butler warned.

“One important lesson to take away from Donovan v Donovan is that the presence of a broad deeming clause can have far-reaching consequences such as including the three-year limitation,” he explained.

“The ATO in SMSFD 2008/3 considers that s 59(1A) of the SISA and reg 6.17A of the SISR have no application to SMSFs, subject to the terms of the SMSF deed. Accordingly, an appropriately drafted SMSF deed should expressly exclude these provisions.”

SMSF professionals and trustees should also look out for SMSF deeds that rely on a three-year BDBN or contain sloppy wording, he cautioned.

SMSFs that contain poor wording such as “the BDBN is only binding if it’s to the trustee’s satisfaction” can be easily challenged, he said.

“This type of wording can easily give rise to argument if, say, the trustee is the second spouse who decides to reject the BDBN when their spouse dies,” he explained.

It is also important that the chain of previous SMSF deeds, not just the current one, is reviewed, as this can affect whether the BDBN is actually valid.

“The most recent deed must have been varied in accordance with the prior variation power, the relevant consent of each party to effect a variation must be obtained, and relevant notifications under the deed made and any other appropriate legal formalities complied with,” he explained.

“Also, all or some deeds may have required stamping in accordance with the relevant state/territory stamp duty legislation. All these formalities must have been complied with in the document trail, or the fund’s latest deed may not be valid and effective.”

Imprecise wording in a BDBN can also give rise to a number of legal hurdles, such as in the case of Munro v Munro, which used the wording the “trustee of his deceased estate”.

“It is interesting to also note that Mr Munro, who practised as a solicitor during his working life, did not pick up on the numerous legal issues in the documents provided by his accountant and financial planner,” Mr Butler said.

Recent cases such as the Cantor decision and Perry v Nicholson [2017] QSC 163 highlight the problem of how notification and service requirements in relation to BDBNs may give rise to legal challenge.

In the Cantor decision, the trustee of the Cantor Management Superannuation Fund contended on appeal that a BDBN executed by a fund member in 2012 was ineffective because it had not been given to the corporate trustee of the fund in its capacity as trustee in accordance with the terms of the SMSF deed, the director said.

“The court examined the governing rules of the fund and accepted the proposition that the governing rules did indeed require the BDBN in question to be given to the trustee to be effective. However, the court held that this requirement was satisfied in this case by the member leaving the BDBN document at the registered office of the trustee company pursuant to general law standards of service and the specific statutory framework for serving companies set out in s 109X(1)(a) of the Corporations Act 2001 (Cth).”

In Perry v Nicholson, a requirement in the SMSF deed that BDBNs must be given to the trustee was the likely motivation behind the daughter of the deceased member, Ms Perry, bringing litigation contesting the validity of a 2015 change of trustee.

“Ms Perry submitted that, notwithstanding documentation that purported to change the trustee of the fund in 2015, she was still a trustee of the fund and had not been validly removed,” he said.

“Accordingly, Ms Perry submitted that the relevant BDBN purporting to distribute all of the member’s death benefits in the fund to the deceased’s de facto spouse, Ms Nicholson, was invalid. Presumably, this was on the basis that the BDBN had not been provided to the ‘true trustee’ of the SMSF.”

Although the change of trustee was ultimately held to be valid in Perry v Nicholson, the case illustrates that service and notification requirements can provide further ammunition for an aggrieved beneficiary to scrutinise a fund’s document trail, as an invalid change of trustee may provide an avenue to challenge a purported BDBN where these requirements exist.

“The notification or service requirements for BDBNs are generally inappropriate as they give rise to too many issues and prevent members from making effective private BDBNs,” he advised.

Mr Butler cautioned that getting a BDBN right is no easy task and many who mistakenly believe their BDBN is secure will have that complacency exposed after their death when their BDBN is rendered invalid.

Advisers, he said, need to give serious consideration to managing BDBNs as part of each client’s integrated estate and succession planning.

“Our recommendation is for advisers to institute a ‘best practice’ approach to ensure that they only use quality documents and procedures. Ideally, this should be done with the engagement of experienced SMSF lawyers. Otherwise, advisers may be open to significant legal liability when disputes arise,” he warned.

ASIC has increasingly been ramping up its focus on the conduct of advisers in relation to binding nominations in the past 12 months.

A financial adviser was permanently banned after an ASIC investigation found they had dishonestly backdated advice documents and incorrectly witnessed binding nomination of beneficiary forms.

ASIC stated that they have engaged in “misleading and deceptive conduct” by allowing the “incorrectly witnessed binding nomination forms to be submitted to insurers on behalf of two of his clients”.

In January last year, ASIC said that it has discovered widespread examples of improper and unethical practices in relation to death benefit nomination forms.

One of the common practices that concerned the regulator was financial advisers witnessing or having staff members witness client signatures on binding death nomination forms without being in the presence of the signatory. In other cases, it said forms had been backdated.

“Each of these practices fails to comply with the law and may lead to the nominations being invalid,” ASIC said.

 

Miranda Brownlee
25 January 2019
smsfadviser.com

 

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