Retirement
How can I make my binding death benefit nomination watertight?
Australian courts have increasingly been asked to determine superannuation death benefit disputes, with many disputes concerning the validity of binding death benefit nominations.
How can I make my binding death benefit nomination watertight?
Australian courts have increasingly been asked to determine superannuation death benefit disputes, with many disputes concerning the validity of binding death benefit nominations.
Given the number of court cases, it can be assumed many have not proceeded to court because of the costs involved.
That means many binding death benefit nominations, or the trust deed governing the superannuation fund, have not been sufficiently clear to ensure a binding death benefit nomination prepared by a superannuation member is watertight.
What is a binding death benefit nomination?
Often referred to by their acronym, BDBN, a binding death benefit nomination is a direction from a superannuation fund member to the trustee of that fund to pay benefits, following the member’s death, in accordance with the instructions contained in the BDBN.
The trustee is generally bound (under the provisions of the fund trust deed) to act in accordance with the BDBN directions.
A close relative of the BDBN is a non-binding death benefit nomination, the major difference being that the non-binding document is merely an indication of the member's wishes.
Do BDBNs apply only to SMSFs?
No, they are generally available to members of all superannuation funds, whether they be SMSFs or the larger (public offer) funds.
SMSF trust deeds may, however, provide a greater degree of control through a broader range of options, than available through a public offer fund.
A good SMSF trust deed will set out the manner in which the BDBN must be completed for it to be valid. That may include the format of the document, the nomination provisions and requirements for signing and witnessing the document, and presenting it to the trustee. Public offer funds will usually provide a specified form and completion instructions.
One significant difference between BDBNs available under an SMSF, and those available through a public offer fund, is that the latter will in most instances lapse unless renewed every three years. Alternatively, an SMSF BDBN can, subject to the provisions of the trust deed, be non-lapsing. The significant benefit in this instance with an SMSF BDBN is, if the member loses capacity to renew a lapsing BDBN, it will remain in force.
Should every member of a superannuation fund have a BDBN?
Not necessarily, as every member's circumstances are different. However, in the absence of any binding direction on the trustee, the distribution of a member's benefits, following their death, will be at the discretion of the surviving trustee.
For that reason, many superannuation fund members feel it is better to have a BDBN.
Topdocs recommends that individuals obtain specialist advice in respect to their personal circumstances, in conjunction with their other estate planning requirements.
If I have nominated a reversionary pensioner, is that sufficient?
A pension reversion nomination is a request to the trustee to continue paying the superannuation pension, following the death of the superannuation pensioner, to a nominated recipient.
Under the Topdocs SMSF Trust Deed, a valid pension reversion nomination will apply prior to a BDBN. However, it does not mean we recommend no BDBN in the event of a pension reversion nomination having been made.
Our reasoning being, if the pension reversion nomination is invalid, the BDBN acts as ‘backup’ – it deals with the pension assets. Reasons a nomination may be invalid include the prior death of the nominated beneficiary or a change of circumstances where that nominated beneficiary is not entitled to receive a pension from the fund.
Who may be nominated as a beneficiary?
Superannuation legislation restricts who may be nominated as a beneficiary under a BDBN, or as a recipient of the pension.
The pension recipient under a reversion nomination must be a dependant (defined in superannuation legislation) of the deceased. They must be:
• spouse;
• child:
o under 18; or
o if over 18 and under 25 and is financially dependant; or
o is disabled (under a specified range of disability);
• financially dependant; or
• in an interdependency relationship with the deceased (usually siblings or close friends, each caring for the other).
To receive a lump sum amount, the definition is a little broader. The age limits on children are removed and the Legal Personal Representative of the deceased can also be nominated to receive benefits.
Therefore, any child of the member may be nominated to receive benefits under a BDBN, although those benefits must be paid as a lump sum if the child is not entitled to receive benefits in the form of a pension.
The Legal Personal Representative is usually the executor of the will of the deceased or administrator of their estate (if they left no will). In other words, the BDBN can be used to direct the funds from superannuation to the estate and, from there, dealt with in accordance with the terms of the will or, if no will, as directed by law.
Some traps to avoid
To ensure that their BDBNs will be effective at their death, superannuation members should be careful to avoid some potential traps. They should:
• prepare a BDBN in accordance with the trust deed;
• nominate beneficiaries who are authorised dependants;
• correctly complete the BDBN forms (we recommend that legal oversight be obtained), including signing the document in front of witnesses;
• regularly review the provisions of the BDBN, particularly in regards to any changes in circumstances of the member or beneficiaries;
• when directing benefits to the Legal Personal Representative, ensure the will adequately deals with those benefits; and
• where necessary, renew the BDBN within the three-year time frame.
Making it watertight
Settling disputes through court applications can be a very costly and unsatisfactory process: removing any doubt as to the intentions of the superannuation member, and the validity of their instructions, is a vital component to ensuring those left behind receive their intended entitlement without any further disruption to their lives.
Michael Harkin, national manager for training and advice, Topdocs
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