By Peter Gandolfo, Partner and Christian Chenu, Associate
Binding Death Benefit Nominations, or BDBNs for short, may be the most important estate planning document you never knew you needed.
Sometimes referred to as a ‘super will’, BDBNs give binding instructions to the trustee of your superannuation fund to pay out its contents to a nominated person. If you have a self-managed superannuation fund, the trustees of your fund will be some but not all of your loved ones, according to the terms of your will and the governing rules of your fund.
Trustees will generally have discretion to determine who receives the assets in your fund unless they have received directions from you in the form of a binding nomination. In practice, trustees might be inclined to disregard your wishes and redirect super away from your intended beneficiaries and instead to themselves in accordance with their general discretion as trustees.
Without a valid nomination, your intended beneficiaries may have no grounds to challenge this, which can be devastating for families.
Who can you nominate?
You can nominate any of your dependants as defined under superannuation and taxation law. This may include:
- Your current spouse, including your de facto partner
- Your children, although tax implications will arise depending on the age and dependency of the child
- Any other person with whom you are in a dependent or interdependent relationship.
You can also nominate your legal personal representative, that is, the executor of your will or administrator of your estate.
A BDBN produced for a self-managed super fund allows you flexibility to make more than one nomination, or provide for a fall-back position, which industry and retail funds do not commonly allow.
Estate planning considerations
By using a BDBN to direct your superannuation into your estate, you may be able to realise some asset protection advantages. Assets held within an estate may be protected from an individual’s personal liabilities. This can be useful when beneficiaries have major life issues, such as divorce, mental illness, business risks, debt or substance abuse or gambling problems.
However, at the same time, directing superannuation to your estate could expose it to contested will disputes. Therefore, it may be necessary to balance the competing concerns of managing the risk of trustee dishonesty within your superannuation structure, the liabilities of your individual family members and the likelihood of anyone challenging your will.
A binding death benefit nomination should not be prepared in isolation. Your broader estate planning strategy, including any will and auto-reversionary pension, should be considered.
The circumstances of your intended beneficiaries are relevant. This is especially so in light of the new $1.6 million superannuation transfer balance cap which will take effect from 1 July 2017. Depending on how much superannuation an intended beneficiary already has, they may be unable to receive distributions from you in the most tax-effective manner. Managing these issues can require holistic advice from your lawyer, accountant and financial planner.
How long do BDBNs last?
This will depend on the governing rules of your fund. Most modern self-managed superannuation funds permit indefinite nominations. It is important to note that many funds with older deeds will allow only nominations that lapse after three years.
What can you do next?
It is important for a BDBN to be drafted properly and in accordance with your other estate planning documents.
If you don’t know whether you already have a BDBN, if your BDBN has expired, or you are interested in drafting a BDBN, contact Partners Legal on 1800 333 243 to arrange an obligation-free consultation.
This article is not intended to be a comprehensive review of all developments in the law and practice, or to cover all aspects of those referred to. Readers should take legal advice before applying the information contained in this article to specific issues or transactions.