We often consider that superannuation is ‘ours’. It’s our money that we contribute to our long-term retirement savings. But there are rules and regulations that are imposed in the superannuation environment which have to be carefully considered. For example, unless certain circumstances arise, you are not able to simply withdraw your superannuation entitlements. Death is one circumstance where superannuation must be paid out of the fund in which it was held – but it cannot be paid to just anyone.
Who is Eligible to Receive your Super?
When a member of a superannuation fund dies, they receive a ‘death benefit’. Broadly speaking, a death benefit is the sum of the person’s member balance (made up of all of their contributions and earnings on those contributions) and any life insurance that they hold in the fund. That death benefit can only be paid to a limited class of recipients (referred to in the superannuation legislation as a ‘dependant’. These dependants include:
· the member’s spouse or de facto partner;
· the member’s child; and
· someone financially dependent on the member, or in an inter-dependency relationship with the member.
The member’s legal personal representative is also eligible to receive a death benefit (which means it forms part of their estate).
A person’s Will does not automatically govern where their death benefit will be paid. It is only if the death benefit is paid to the member’s legal personal representative that their Will (if any) will dictate how the death benefit is then paid. If there is no Will, then death benefits paid to the estate will be governed by the laws of intestacy.
A Binding Death Benefit Nomination (BDBN) is a legal document that allows you to specify who will receive your superannuation benefits upon your death. Unlike a non-binding nomination, which provides guidance to the superannuation fund trustee but is not legally binding, a BDBN legally obligates the trustee to follow your instructions. This can be a valuable tool for ensuring that your assets are distributed precisely as you intend.
The Key Advantages of BDBNs
- Certainty: The primary advantage of a BDBN is the certainty it provides. By specifying your beneficiaries and the percentage of the benefit they should receive, you can eliminate ambiguity and reduce the likelihood of disputes among family members or other potential claimants.
- Control: BDBNs give you greater control over your superannuation benefits. Without a binding nomination, the trustee has discretion in choosing beneficiaries, which may not align with your wishes. A BDBN ensures that your wishes are respected and enforced.
- Privacy: BDBNs can help maintain the privacy of your superannuation affairs. If your nomination is binding, the trustee of the super fund doesn’t need to make inquiries or inform other family members, thereby keeping your financial matters confidential.
- Flexibility: You can update your BDBN as circumstances change, such as when your family situation evolves due to marriages, divorces, or the birth of children or grandchildren. Regularly reviewing and updating your nomination is advisable.
How to create a BDBN
It’s crucial to work with financial advisors and estate planners when completing your BDBN. These professionals can help you understand the legal requirements and consequences of your choices. Different superannuation funds may have varying rules and processes for BDBNs. Most superannuation funds provide standardized forms for making a BDBN and some BDBNS are lapsing and some require renewal every three years. Ensure that you complete the form accurately, specifying the beneficiaries and their respective shares and sign the BDBN in the presence of two independent witnesses.
Consideration needs to be given in an estate planning context in respect of who is intended to benefit from the death benefit – i.e. do they fall within one of the above categories, or is it necessary to send the superannuation to the estate and what are the implications (tax and otherwise) of doing so. It is always wise to seek professional advice from an estate planning lawyer when considering BDBNs to ensure your wishes are accurately reflected and legally binding. By taking this proactive step, you can provide peace of mind for both you and your beneficiaries, knowing that your superannuation assets will be distributed according to your exact wishes.
Disclaimer
The information contained on this website is for general guidance on matters of interest only. The application and impact of laws can vary widely based on the specific facts involved.
Accordingly, the information on this site is provided with the understanding that the authors and publishers are not providing legal advice. As such, it should not be used as a substitute for consultation with professional legal advisers. Before making any decision or taking any action, you should consult with a professional lawyer from Rouse Lawyers.
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