Binding Death Benefit Nominations: What You Need to Know
Most industry and retail superannuation funds, and almost all self-managed superannuation funds (SMSF), allow fund members to make binding death benefit nominations (BDBN). Whether a fund allows for BDBN depends on the terms of the governing trust deed, which sets out the rules for the fund's management.
A BDBN document contains the fund member’s instructions about who should receive their superannuation death benefit. Once executed, it may need to be delivered to the trustee of the superannuation fund prior to death for it to be valid.
To be valid and binding, the BDBN needs to nominate a person (or more than one person) to whom the trustee of the superannuation fund is to pay the death benefit to in the event of the fund member’s death and the amount or percentage of the death benefit each person is to receive. A valid BDBN can nominate one or both of the following:
- The fund member’s legal personal representative; and/or
- A ‘dependant’ of the fund member, such as a spouse, de facto partner, child, or an individual who is in an ‘interdependent relationship’ with the deceased.
These nominations, provided they are prepared and executed in a manner that is consistent with both the applicable provisions of the Superannuation Industry (Supervision) Act 1993 (Cth) (SIS Act) and Superannuation Industry (Supervision) Regulations 1994 (Cth) (SIS Regulations), or with the fund’s trust deed, are binding on the trustee of the fund.
Upon the death of the deceased member, the trustee is bound to pay the death benefit in accordance with the terms of the BDBN. The BDBN will provide directions on how the death benefit is to be paid to the deceased member’s legal personal representative, their dependant(s), or a combination of the two.
While many industry and retail superannuation funds allow their members to make a BDBN, the SIS Act, the SIS Regulations and the rules of some of these funds only allow their members to make a BDBN that is valid for three years from the date the member signs it. Such nominations are known as a ‘lapsing’ BDBN.
Where a superannuation fund only allows its members to put in place a lapsing BDBN, the fund members are required to execute a new BDBN periodically in order for it to remain binding in the event of their death.
If the member lets their BDBN lapse, it will not be binding on their fund’s trustee at the time of their death, and reverts to being a ‘non-binding death benefit nomination’. The fund’s trustee, however, can take the contents of the lapsed BDBN into account when deciding to whom to pay the death benefit to.
The preparation of a valid BDBN is vital to ensure that your superannuation death benefit is paid in accordance with your wishes. The decision in Munro illustrates the importance of ensuring that a BDBN is prepared and executed in a way that satisfies the terms of a superannuation fund’s deed, and the SIS legislation. The interpretation of the fund’s deed should be carried out by a lawyer with expertise in this area of law. It is important to note that financial planners and accountants cannot provide legal advice.