Binding Death Benefit Nominations – the pitfalls

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A Binding Death Benefit Nomination (“BDBN”) is a written direction by you to the trustees of your fund about how your superannuation benefits are to be paid to dependants when you die. A valid BDBN must be followed by the trustees.

A recent case has highlighted the requirements of a BDBN. In “Morris’s Case”, the deceased member had executed a BDBN in favour of his daughters from a previous marriage. His co-trustee (his new wife) decided that the BDBN was not valid because it had not been received by the Trustee of the fund, it did not meet the requirements of the deed and did not name the fund. She then appointed her son as co-trustee and paid the entirety of the death benefit to herself.

So what makes a BDBN valid? There are a number of conditions a BDBN must meet:

  • It must be in favour of one or more of your dependants (as defined in the deed and in superannuation law) and/or your estate – and the allocation between beneficiaries must be clearly set out – either as a dollar amount or as a percentage

  • 100% of the benefit must be allocated – you cannot require part of your benefit to be paid in accordance with the BDBN

  • The dependants nominated must be your dependants at the date of death

  • The BDBN must name the relevant fund and member account or accounts

  • The BDBN must be signed and dated by you

  • It must be witnessed by two witnesses over the age of 18 and not nominated as beneficiaries. Each of those witnesses must sign a declaration within the BDBN stating that the BDBN was signed and dated by you in their presence

  • It must be no more than three (3) years old unless your fund trust deed allows for a BDBN to apply indefinitely (non-lapsing)

  • It must be received and accepted by the trustees of the fund. This can be proved by a trust minute and an acknowledgement of receipt.

If you nominate your estate to receive the benefit, you should ensure that your will accurately reflects your wishes.

If a BDBN is found by the trustees to be in-valid, the payment of the benefit is at the discretion of the trustees and will be paid to your dependants and / or your estate in whatever proportions the surviving trustees decide.

If you have any doubt about this you should discuss this with a specialist in estate planning.

 Addison Partners has a dedicated team that concentrates on Superannuation lead by superannuation specialist, Jane Thomson. Addison Partners provide advice on developing and implementing superannuation strategies to reduce your tax and increase your savings for retirement. To arrange for a review, please contact your usual Addison Partners contact or call 02 4995 7300 to arrange an appointment.

Sources:

Wooster and Smoel v Morris & Ors – Supreme Court Proceeding No. SCI 2012 03693 – Wooster v Morris [2013] VSC 594

Australian Taxation Office – Setting up a Self Managed Super fund – www.ato.gov.au

Copyright ClientComm 2014