Legal Tip 169: What is a Binding Death Benefit Nomination (BDBN)?

Legal Tip 169: What is a Binding Death Benefit Nomination (BDBN)?

Superannuation is held on trust for its members until they reach a condition of release – including death. Upon death of a member the trustee of the fund must pay out the dead members superannuation benefits – ‘death benefits’. This can only be paid to ‘dependants’ of the member or their estate. Generally, the decision of who to pay the benefits to rests with the trustee of the SMSF.


Where the trust deed allows it a member may direct the trustee to pay their benefits to specific persons. These directions can take 2 forms:

a) Death benefit nominations – which are not binding, or

b) Binding Death Benefit Nominations – which the trustee must follow providing they have been correctly set out.


The benefits of a non-binding nomination is that it allows for flexibility with changing circumstances. These are not very common, especially outside of SMSFs.


BDBNs are more common of the two, yet there are probably still not that many people that have made a BDBN.


A BDBN can only be made where the SMSF deed allows it. It must also meet all the requirements listed by the trust deed – it might need specific wording, and be delivered to the trustee for example.


Note that for non-SMSFs a BDBN will lapse after 3 years because of SIS Regulation 6.17(7)(a) – or sooner. This regulation does not apply to SMSFs (see SMSFD 2008/3) so a BDBN of a SMSF need not be renewed as long as the deed allows for this.



A final question: Do you want a group of strangers you don’t know in a glass office deciding who will get your superannuation (industry or retail fund), including any life insurance pay outs?


If not set up a BDBN. You can do this by ringing up your superfund and asking if it is possible and if so could they send you the relevant forms. After filling it in and sending it back you should seek confirmation in writing that is has been received and will be effective.


If you are a member of a SMSF you need to read your deed and follow the procedures to the letter. Failing to date the document could mean it is invalid for example.


Either way seek legal advice.

 

Spot on Terry - what seems so easy and simple may be exceptionally complex and lead to complete asset risks.

There are non-binding binding nominations !! as well as conditions applicable to SOME binding nominations which if not met may even invalidate the whole thing. And then SMSF nominations are particular to the specific smsf and some poorly written deeds adopt the same law which makes a nomination invalid after three years...When a SMSF otherwise may not be liable for that rule.

Lawyers and accountants and financial planners have all been implicated in errors about such nominations. I believe one of the leading SMSF lawyers even buggered up his own nomination too. Munro v Munro.

IMO any nomination and member wills should be attended by lawyers and both should reflect the other and be reviewed each 2 years and 10 months by the same parties. Members of even industry funds should be very wary of just filling out paper nominations sent by funds too. The trustee can make their own choices and this can also be fraught with peril. A recent ADF members estate encountered such a problem. New wife gets the lot. His kids get zip. His ex wife gets to raise the kids with $0. The serving member who dies had nominated his estate which provided for the kids under a testamentary trust...Fund trustee decided his "partner" would get super.

 

Thanks for this info. Good stuff.

I've done the BInning Death Nomination to my Estate , which was reviewed by the solicitor, for my SMSF. Copy kept with my Will by solicitor and copy of Will also given to FP firm. The one thing the solicitor did for the Testamentory was to include a provision for transferring the shares held by the Corporate Trustee to the Executors. Advised while they had no monetary value as such, it had the effect of tranfering control.

Mind you I won't be here to see what actually happens. Happy Days?

 

PS: Sort fur th pore spellin, peeps. Be grateful I'm not drafing your Will.

 

Forgot to mention that what has been done is the Estate funds are not necessarily pooled but are able to be split between the nominated beneficiaries. Separate Trusts I understand. Plus an age opt out clause.

Also a provision for the Executors to be a partner of the accountancy firm jointly with a partner of the legal firm. Fees based on hourly rates for accounting firm and proportioned between them. Seemed better to me than being subject to Public Trustee fees.

Very fascinating subject all round. Dry as dust to many though.

 

A superannuation proceeds trust perhaps - beneficiaries limited to dependants to save tax.

 

I have the non-lapsing one.

 

I once had to act for a lady with a kid at superannuation complaints tribunal... not nice but not a bad outcome either.

 

Why are BDBNs sometimes called SMSF Wills?

 

Marketing - the promoter can charge more perhaps?

 

My understanding is that all non-smsf funds' BDBN must lapse after 3 years.

 

I also have a non-lapsing one which isn't part of a SMSF, set up 2 months ago through my super at work - Unisuper

 

I will have to look into this deeper but the relevant legislation is SIS Reg 6.17A(7). The SIS regs on Austlii aren't coming up and the official legislation site is too hard to read on a friday.

At this stage I think those non-lapsing BDBNs may actually lapse.

 

Yes.

 

The difficulty is that is it requires legal and financial advice

 

Grant Abbott invented that term. Since smsf nominations are not bound by the 3 year rule. At MGS we copied that view as did anyone else who can read law

 

I don't think there is any financial advice need in advising on a BDBN. It is just trust law and SIS Act law.

 

Super is a financial product and Corps Regs cover it.
Absurdity of Corp laws

 

Yes super is, but this is about legislation and the law in general. No financial aspects need to be advised on in relation to a BDBN.

 

Had another read of my Will. It includes provision for this. After a discussion with my principal Executor, they have come to the view they need to study this and other provisions and probably will need to seek appropriate advice on its application. The observation was made there is little point in having a rule book, i.e. the Will, if you don't fully understand the rules. Fair point I thought.