You may have a Will, Power of Attorney and Enduring Guardian, but having a Binding Death Benefit Nomination (BDBN) is a critical aspect of Estate Planning that is often overlooked, according to estate planning lawyer TERRY MORGAN.
CASE STUDY: In a case involving a self-managed superannuation fund (SMSF) which held substantial assets, there was no BDBN in place and as a result the funds went to the ‘wrong’ person and contrary to the wishes of the deceased.
This couple had two children, a daughter and a son. One of the trustees (the mother) passed away, and the father appointed his daughter to replace his deceased wife as the other trustee of the SMSF. When the father passed away, the daughter subsequently appointed her husband as the other trustee of the SMSF in place of her deceased father.
The father’s Will stated his superannuation benefits were to be divided equally between the son and daughter. However as trustee of the SMSF, the daughter paid all of her father’s superannuation benefits to herself.
The son commenced legal proceedings but was unsuccessful, as the court found that the trustee was required to administer the SMSF in accordance with the Superannuation Industry (Supervision) Act, but had no duty to do so in an equitable manner.
In the absence of a non-lapsing BDBN, the outcome in the above case was different to the wishes of the late father.
A BDBN is a binding notice given by you, as a superannuation fund member, to the trustee of your superannuation fund to detail who will receive your superannuation entitlements upon your death. Without a valid BDBN in place, your superannuation fund trustee will rely upon relevant legislation and your superannuation fund trust deed which governs the rules of your superannuation fund, and will exercise discretion in respect to payment of your death benefits.
In many circumstances this means that your superannuation entitlements will not form part of your estate and therefore may not be dealt with in accordance with the terms of your Will.
The value of a Binding Death Benefit Nomination
If you nominate your ‘legal personal representative’ in your BDBN, your superannuation entitlements will be paid to your estate and will therefore be distributed in accordance with your Will, if you have one, or otherwise in accordance with the laws of intestacy.
Most superannuation funds permit BDBNs, and a properly completed and current BDBN will be binding on your superannuation fund trustee and would therefore eliminate any discretion and potential uncertainties and/or disputes concerning the distribution of your superannuation entitlements upon your death.
There are restrictions on who you can distribute your superannuation entitlements to upon your death, and generally your death benefits can be distributed to one or more of your ‘dependents’ or your ‘legal personal representative’.
Your ‘dependents’ include:
- spouses (including de facto spouses);
- children (including step-children, adopted children, foster children);
- any person who was in an interdependency relationship with you at the date of your death; and
- any other person (irrespective of age) who is in any way financially dependent on you.
Depending on your circumstances, it may be appropriate to implement a BDBN or update/renew your current BDBN, which may have lapsed, to gain certainty on how your superannuation entitlements will be distributed following your death.