Superannuation is a fundamental component of the retirement planning of all working Australians. One aspect of Superannuation that must be considered is what happens to your Superannuation Benefits in the event of death.
If you think that your Will (if you have a Will) determines who receives your Superannuation upon death then this is incorrect. Essentially, if you do pass away, the rules of the Super Fund will determine how and to whom your Superannuation will pass.
Unless you have a Binding Death Benefit Nomination (“BDBN”), the Trustee of your Super Fund will determine who receives your Superannuation Death Benefits. The Superannuation Laws, allow you to take back control over that decision making process by allowing you to bind the decision making of the Trustee where you have provided the Trustee with a BDBN.
A BDBN is a binding direction, signed by the Super Fund Member which requires the Trustee of the Super Fund to pay the Superannuation Death Benefits in a particular manner to a particular person or persons. Different rules apply to BDBN’s for the usual Retail/Industry Super Funds verses Self Managed Super Funds (“SMSF”).
To be a valid BDBN the following criteria must be met:-
1. The BDBN must satisfy the relevant rules of the Super Fund.
2. The BDBN must satisfy the Laws (namely, Clause 6.17A of the Regulations) which requires that:-
(a) The nomination be in writing;
(b) The nomination be witnessed by two (2) adults;
(c) It must be renewed every three (3) years for a non-SMSF Fund.
3. The BDBN must only allow for distribution to persons who are a “super dependent” or the “legal personal representative” which means the Executor/Executrix of your Estate.
An SMSF has an advantage over a Retail/Industry Super Fund in that there is no specific requirement for the BDBN to be renewed every three (3) years. Having said that, the specific terms of the SMSF Trust Deed should be reviewed to ensure that any other requirements or limitations about a BDBN are properly considered.
The true advantage of a BDBN is as follows:-
1. It can be made or changed at any time, which is important if your circumstances or wishes change.
2. It can provide certainty as to outcome as it binds the decision maker;
3. It can be used in conjunction with other Estate planning instruments (such as the Will) to provide for a broader range of your Beneficiaries and/or avoid unintended consequences by controlling the outcome;
4. It can streamline the administration process for distributing your Superannuation Death Benefits by removing the administrative decision making task of the Super Fund Trustee.
What should you do? The starting point is to consider whether you have an appropriate plan with respect to your Estate and your Superannuation. You should review your Superannuation Plan and ensure that if prudent you have a BDBN in place.
There are other multiple and relevant strategies that you should also consider as part of your Estate Planning processes.