The intersection between superannuation and estate planning can be complicated. One of the key issues in this intersection is a document called a Binding Death Benefit Nomination. This article provides answers to some of the questions you might be asking about Binding Death Benefit Nominations.
You may be thinking, “I intend to use my retirement savings myself, I don’t want to nominate someone else to receive it!” That is a reasonable thought, but what happens if you still have assets in superannuation or a life insurance policy when you die? You would want the balance of your superannuation and life insurance proceeds (if any) to go to a person or people of your choice. It is for this reason that all members of superannuation funds are encouraged to nominate a beneficiary, or beneficiaries, to receive their entitlements (known as “death benefits”).
In the absence of a nomination, the trustee of the superannuation fund will make a determination with respect to whom the death benefits are paid, in accordance with the terms of the superannuation fund’s deed.
For instance, the Trustee of the fund may decide which of your potential beneficiaries receive the entitlements (which may require your dependents to make a claim). This may be inconsistent with your wishes, may result in adverse tax consequences and will delay the payment. Alternatively, the Trustee of the fund may pay the entitlements to your estate, where they could be subject to a family provision claim or be distributed to an unintended beneficiary.
Superannuation and life insurance are not assets that you personally own. They are held on trust for you by the Trustee of the fund. As such, they are not assets that automatically form part of your estate, to be distributed in accordance with your Will.
You can, however, make a nomination to your Estate, and you have a valid Will your Executor will receive your death benefits and distribute them in accordance with your last Will.
Accordingly, it is important to actively consider your superannuation nomination and your Will, in the context of your broader estate plan.
Put simply, a Binding Death Benefit Nomination (“BDBN”) is a legally binding document which allows you to tell the Trustee of your Superannuation fund who to pay your superannuation entitlements to after you die. As long as the nomination made is valid and binding, a BDBN leaves the Trustee with no choice as to who receives your benefits.
In contrast, most retail and industry Superannuation funds also provide the option of making a non-binding nomination on their website, which is easier to complete but only informs the fund of your preferred beneficiary, which the Trustee of the fund is not bound to follow. The Trustee will follow the rules of the fund, which may have strong regard for your non-binding nomination or may require the Trustee to pay the death benefits to another recipient.
When a person dies, they often leave behind significant superannuation assets and life insurance proceeds, which may be pursuant to a life insurance policy arranged through their superannuation, that they might not be aware of.
If there is a valid BDBN in place, you can be sure the superannuation fund will distribute your entitlements to the named beneficiary or beneficiaries on your nomination (provided those nominated are eligible beneficiaries).
The case of McIntosh v McIntosh  QSC 99 provides one of many examples of the unintended consequences that can arise from not making a BDBN.
In that case, James McIntosh died leaving no spouse or children and no Will. His mother, Ms McIntosh volunteered to be the administrator of his estate. His estate was worth about $80,000 but he had over $453,000 across three superannuation funds. He had made non-binding nominations of his death benefits in favour of Ms McIntosh (who was an interdependent). Ms McIntosh claimed and the superannuation funds agreed to pay her son’s death benefits to her. However, James’s estranged father disputed this payment on the grounds that Ms McIntosh had a conflict of interest.
The Court found that as a voluntary administrator, Ms McIntosh’s duty was to maximise the value of the estate. In the circumstances, this meant making a claim for the death benefits to be paid to the estate, rather than directly to her.
Accordingly, the Court ordered Ms McIntosh to pay the death benefits to the Estate, which resulted in the funds being split between the father and Ms McIntosh (under the laws of intestacy).
You can read more about the laws of intestacy here.
Had James made a BDBN in favour of his mother, the estate would not have challenged the payment of death benefits. Further, if James had made a Will in favour of his mother, his estranged father would not have been entitled to half his estate (which ultimately included his superannuation entitlements). This case provided a clear example of the importance of obtaining specialised legal advice for estate planning.
Most retail and industry superannuation funds will have their own form for a BDBN, which you can find on their website. The form can be downloaded, completed by including the details of the beneficiary/ies and then needs to be executed in the presence of two independent witnesses.
When choosing beneficiaries, it is important to note that these must be dependants (i.e. your spouse, children or someone whom with which you are in an interdependent relationship) or otherwise your Legal Personal Representative (the Executor appointed by your Will), who is then required to pay the money from the Estate in accordance with the terms of your Will.
You should ensure your BDBN is renewed as required (for most funds, their rules state that nominations lapse every three years). Even if your nomination does not lapse, we recommend reviewing it every three years to consider if it should be updated.
It is also important to keep in mind that your BDBN only relates to the superannuation fund that you submitted the form to and therefore, if you change to a new fund, you will need to complete a new BDBN with that fund.
Another set of rules and restrictions apply to Self-Managed Superannuation Funds (“SMSF”), which require the preparation of bespoke BDBN’s that align with their SMSF Trust Deed.
Our experienced team of lawyers can assist with preparation of all types of BDBN and provide comprehensive advice regarding superannuation and life insurance in the context of your estate plan.
Get started with our easy online form, send us an email or simply give us a call.