Binding Death Benefit Nominations – Achieving Certainty

A common misconception in estate planning is that a person’s superannuation benefits are automatically covered in a person’s will.

This is not the case and, for this reason, Binding Death Benefit Nominations (BDBNs) are an important component in estate planning where an essential objective is invariably to ensure that one’s assets “end up in the right hands” and in their intended proportions following a member’s death.

BDBNs basically nominate the person/s who will receive your superannuation benefits following your death and the proportion those benefits are to be received – this obviously creates certainty as to the distribution of what usually constitutes (along with the family home) a person’s most valuable asset.

Another common misconception is that a trustee of a superannuation fund ( whether an APRA regulated /Industry fund or a Self-Managed Super Fund (SMSF) )will automatically determine that a deceased member’s superannuation benefits will end up with that member’s spouse for instance – while this would normally be the case it is not guaranteed as at the end of the day the trustee has the discretion as to distribution of the benefits unless the member had entered into a validly executed BDBN.

During what is normally a traumatic and challenging time for families, why leave the distribution of benefits up to chance? A valid BDBN will eliminate the risk of benefits (and their proportions) ending up with unintended recipients.

It should be noted that it common for a member to nominate in a BDBN for their legal personal representative to be the recipient of the superannuation benefits upon death – this in effect results in the superannuation benefits forming part of the member’s estate assets which will then be distributed to beneficiaries according to the provisions of the deceased’s will – once again this does not happen automatically without a validly executed BDBN.

You will note the phrase validly executed BDBN is referred to in this article .The BDBN form can appear basic and simple but there are requirements that are set out in the applicable trust deed/regulations that must be complied with to ensure validity ; for example, the nomination must be witnessed correctly, it must clearly state whether it is binding or non-binding and whether it is non-lapsing or has indeed lapsed which can occur in some cases after 3 years.

Like all estate planning documents, it is essential that BDBNs are kept up to date and reflects a member’s current circumstances and wishes. An example may be that a married couple with children may have entered into BDBNs distributing to each other. In the event of both spouses failing to survive each other, it would be left to the trustee as to how the benefits would be distributed whereas an up to date BDBN could have created certainty in directing the trustee to distribute the superannuation payments to the children equally.

As can be seen from the above, BDBNs are an important estate planning tool and given the requirements they be validly entered into and reflect a member’s current circumstances and wishes, it is recommended that advice from professionals ( such as accountants, financial planners and lawyers) be sought as to their implementation.

The information contained herein is of a general nature only and is not intended to be relied upon nor is it a substitute for appropriate professional advice. Whilst all care has been taken in the preparation of the material, it is not guaranteed to be accurate. Individual circumstances are different and as such, require specific examination. Asparq cannot accept liability for any loss or damage of any kind arising out of the use of or reliance upon all or any part of this material. Additional information may be made available upon request.