In its simplest form, superannuation is a regular payment by an employer (and/or perhaps by the relevant employee) to a superfund, to be held on behalf of that employee, as savings for a future pension. Superannuation is not an estate asset. Accordingly, on a person’s death, superannuation is not automatically covered by their Will, and it is not automatically transferred into the estate of the deceased, unless the trustee of the superfund pays it to the estate.
Along with contributions by the employer/employee, superannuation can also total and permanent disability insurance, and life insurance policies, held within a superfund. The trustee of the superfund will generally pay a death benefit in accordance with the governing rules of the fund and relevant law, which may not be in the way that the deceased intended. A binding death benefit nomination (“BDBN”) is a way to override this trustee discretion, and is a way to ensure that the deceased’s death benefits are distributed according to his/her wishes.
A BDBN is a legally-binding, written direction from a member of a superfund to his/her superannuation trustee (being the person who manages the superfund). This direction sets out how a person wishes some or all of his/her superannuation death benefits to be distributed, after their death, to the intended beneficiaries and in what proportions.
In order for a nomination to be binding, it must be ‘valid’. One of the requirements of validity is that only ‘dependants’ can be nominated, and you can nominate one dependant or a number of dependants. For the purposes of superannuation law, a dependant includes:
- a spouse (including de facto, opposite and same-sex),
- children of any age (including adopted or ex-nuptial),
- any person(s) financially dependent on the member, and/or
- any person(s) in an interdependency relationship with the member,
- an interdependency relationship is one where two people have a close personal relationship (with no sexual relationship required), whom live together and one or each of them provide both financial and domestic support and personal care.
To make a valid nomination, the nomination must: –
- be made to the trustee of the superfund in writing, and clearly set out the proportion of the benefit to be paid to each eligible person nominated
- It may also include the type of benefit payment (ie. a lump sum and/or an income stream);
- ensure that the total of the allocations for each eligible nominee adds up to 100%;
- be signed and dated by the member in the presence of two witnesses over 18 years of age and who are not nominated as beneficiaries under the nomination or your Will;
- contain a signed and dated witness declaration; and
- be sent to the trustee of the superfund (a nomination will not be valid until it is received by the trustee and they are aware of its existence).
It is also important to precisely follow the terms of the trust deed to ensure the BDBN’s validity, and to make sure it is applicable under the relevant superfund rules. If you BDBN is declared invalid, it leaves the superfund trustee with the discretion to pay any amount or proportion to the beneficiaries that it sees fit.
Once you have made the nomination, it will be valid for three years from when it was signed and dated, at which time it will then lapse if it is not renewed. Some trust deeds include the ability for a non-lapsing BDBN, which means that you do not need three year reviews. You can renew, change, update or revoke a BDBN at any time.
If the nomination is valid, the trustee of the superfund must follow its directions, even if your circumstances have changed. For example, if you nominate your spouse but you then separate and are yet to obtain a divorce, the nomination will remain valid and will bind the trustee unless the nomination has been amended, revoked or has expired. Accordingly, if you have a change in circumstance, you should change your BDBN urgently.
One of the biggest benefits you receive from having a BDBN in place is peace of mind. This is especially the case if you have multiple beneficiaries who may have a claim on your death benefit. A BDBN also increases the ease and speed with which a death benefit may be paid. If your beneficiary needs quick access to your benefit, a BDBN may allow a more timely distribution of your assets and your beneficiary will not need to wait for the trustee or the deceased estate to determine his/her distribution.
In summary, a BDBN is the same to a superfund as a Will is to a person. It ensures that after your death, the payment of your superannuation entitlements are distributed according to his/her wishes, to the desired eligible persons in the desired proportions. Contact us today to uphold security for your loved ones, even after you are gone.
Ths article has been written by Hannah Newton and is intended for information only. For specific advice in relation to your circumstances please call Septimus Jones & Lee on 9613 6555.