Binding Death Benefit Nomination – What Is It? Do I Need One?

Many people don’t realise that superannuation is not an estate asset; Therefore, it does not automatically go to the estate of the deceased. It is also not necessarily covered in a Will, so it is essential that you consider how you want your super benefits distributed and make arrangements so that they are paid in accordance with your wishes. Robert Wood and Associates are the family law specialist Melbourne trusts for professional legal services and advice. If you want to direct your super to someone after you pass away, you should consider a binding death benefit nomination (BDBN). Let’s take a look at what that means.

What is a Binding Death Benefit Nomination?

A BDBN is a signed legal document that is given to your super fund which instructs the super fund trustee which beneficiaries should receive your superannuation in the event of your death. Without a BDBN, then the super fund trustee has the discretion to determine where your death benefits are to be distributed, in accordance with the governing rules of the fund and relevant law.

In Order for a Nomination to Be Binding, it Must Be Valid

One of the main validity requirements is that only dependants can be nominated. However, it is possible to nominate more than one dependant if you wish. For the purposes of superannuation law, a dependant includes:

  • your current spouse (including de facto, opposite and same-sex)
  • your children (including adopted or ex-nuptial)
  • any person(s) financially dependent on you
  • the executor of your Will
  • any person in an interdependent relationship with you – this is a person who is in a close personal relationship with you, lives with you and one or each of you provides the other with financial or domestic support, or personal care.

What are the Benefits of a BDBN?

Having a binding death benefit nomination in place provides a great level of certainty and peace of mid. This is especially important if you have multiple beneficiaries who may have a claim on your benefits. A BDBN allows you to determine the exact people that will receive your death benefit and, if being paid to more than one beneficiary, the proportion each will receive.

Another advantage of a BDBN is that it makes the payment of the death benefit quicker and easier. This is helpful if your beneficiary needs quick access to your funds. The BDBN generally allows for a faster payout as your beneficiary won’t have to wait for the trustee or the deceased estate to determine the distribution.

Here are a Few Things to Consider About Binding Death Benefit Nominations

They Expire

In most cases, a Binding Nomination expires three years from the date that it is signed. Once expired, it becomes of persuasive value only. There are some superannuation funds which have an option for a non-lapsing Binding Nomination, this means they do not expire and remain in place until they are revoked. You are free to revoke or change a lapsing or non-lapsing BDBN at any time. Self-managed super funds (SMSFs) may also be an exception to the 3-year rule. With SMSFs, a BDBN can apply indefinitely if the SMSF trust deed allows for it.

They Must Be Carefully Prepared

For a BDBN to be valid, it must be prepared very carefully. This means each nominee must be eligible, the total of the allocations for each nominee must add up to 100%, it must be signed and it must be witnessed by two people over 18 years of age. The witnesses must not be named in the Binding Death Benefit Nomination or named in your Will.

If the Nomination Is Valid, the Trustee Must Follow It

Even if your circumstances have changed, if the nomination is valid it binds the trustee to abide by the terms that have been stipulated. A good example is if you nominate your spouse and you separate, but have not yet obtained a divorce, the nomination remains valid. Unless the nomination has been amended, revoked or has expired, the trustee will follow it.

Payment of superannuation entitlements after your death can result in significant distributions to your beneficiaries, so it’s important that you take the time to consider a Binding Death Benefit Nomination when preparing your estate plan.

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