When you pass away, your superannuation benefits do not automatically form part of your estate. Instead, they’re paid out by your superannuation fund’s trustee who has the discretion to decide who will receive your benefits and in what form. So, what can you do to ensure your super is paid out in accordance with your wishes?
For many people, a binding death benefit nomination (BDBN) is an appropriate safeguard to put in place.
Under superannuation law, your death benefits can be paid to either, or a combination, of your “legal personal representative” (LPR), which means those superannuation benefits will then be dealt with by your will; and/or one or more of your “dependants” directly, as a lump sum or in some cases a pension.
This is a lot of discretion for the trustee! If you’d prefer to have certainty about how your benefits will be paid, consider making a BDBN. This is a written direction given to the trustee specifying where your death benefits should be paid (and optionally, in what form). Provided the BDBN is valid and still in effect when you die, the trustee is bound to follow it.
You should seek expert assistance when preparing a BDBN, especially if you’re an SMSF member. In recent years, legal disputes before the courts over the terms of BDBNs have highlighted the traps that can arise. Here we outline a few key principles to keep in mind.
First, the trustee can’t follow a BDBN to the extent the payments would breach superannuation law. This means your BDBN can only specify the permitted recipients discussed above (your LPR and/or “dependants”).
Second, for non-SMSFs, a BDBN must meet various documentation requirements in order to be valid, such as being witnessed correctly by two eligible adult witnesses. For SMSFs, these requirements vary depending on the particular fund’s deed.
Third, to ensure their BDBN is valid, it must be consistent with other relevant legal documentation, including the fund’s deed, pension documentation and your will.
For non-SMSFs, a BDBN expires after three years. In an SMSF, a BDBN can potentially last indefinitely, but many SMSF deeds impose a three-year expiry anyway! In any event, it’s good practice to review your BDBN every few years or whenever a major life change occurs.Contact our office to begin your superannuation succession plan. We’ll help you ensure your wealth passes into the right hands, giving you maximum control and peace of mind.