Binding nominations play an important role in ensuring superannuation death benefits are distributed according to your wishes.
What are superannuation death benefits?
Superannuation death benefits are the payment of your superannuation at the time of your death. Many superannuation funds will allow you to nominate who will receive the benefits (the beneficiaries), and this is often done with a binding death nomination.
What is a binding death nomination?
A binding death nomination (BDN) is a written direction to your superannuation fund with your instruction as to how to distribute your superannuation death benefits. You can only nominate a superannuation dependant, including; your spouse, child, any person financially dependant on you, any person in an interdependent relationship with you or your legal personal representative (executor).
What are the legal considerations for BDNs?
If a superannuation fund allows BDNs, Australian laws impose specific requirements to ensure they’re valid and binding. BDNs must:
Be in writing.
Be correctly signed, dated and witnessed.
Specify what percentage of the death benefit will be distributed to each beneficiary (with the total of all parts adding up to 100 per cent).
BDNs usually expire after three (3) years and once the BDNs expire, they no longer bind the fund’s trustees. Because some superannuation funds have different expiration periods, you must check when your BDN expires and update it if necessary.
The bottom line is this: a BDN that doesn’t meet the legal requirements is not valid and not binding.
What happens if I die without a valid BDN?
If your BDN is invalid or has expired at the time of your death, the trustee will use the fund’s rules and relevant laws to decide who receives your superannuation death benefit. If there are several eligible recipients, there is no guarantee that the benefit will be paid to the beneficiaries you would have nominated.
Some people may also consider challenging the trustee’s decision. If this happens, the trustee must decide whether to allow the challenge within a specific time, usually up to four weeks. Then the complainant may appeal to AFCA.
How can I ensure my superannuation death benefits are distributed according to my wishes?
The most important factor for death benefits distribution is to have a valid BDN.
It means checking your fund’s BDN requirements, for example:
When your BDN expires
Who are your nominated beneficiaries
Whether your nominated beneficiaries are still your intended beneficiaries
If in doubt, arrange to make a new BDN.
If you have an SMSF, ensure your BDN complies with the trust deed, especially regarding non-lapsing BDNs and any witnessing requirements.
BDNs are widely recognised as an effective and efficient way to ensure superannuation death benefits are distributed according to the deceased person’s wishes. However, they should not be treated as a “set and forget” mechanism. The three-year life of super fund BDNs exists so you can regularly reconsider your nominations and make any changes according to your circumstances and wishes.
If you are considering implementing a BDN or need to arrange a new one, please contact our team on 03 9584 2277.