The Benefit of a Binding Death Benefit Nomination
For many years now some superannuation funds have enabled members to make binding nominations as to how their member entitlements will be paid out upon death. A binding death benefit nomination (BDBN) can be a handy estate planning tool.
Firstly clients need to understand that they do not "own" their own superannuation entitlements. On death, the trustees of a superannuation fund will decide, with reference to the relevant trust deed and the legislation, who will receive the entitlements.
Under the Superannuation Industry (Supervision) Regulations Cth (1994) trustees of a superannuation fund can only determine to pay member entitlements to:
- A legal personal representative; or
- A 'dependant'. That term has its ordinary meaning (i.e. someone actually dependent on the member), but is also defined to include:
- spouse (irrespective of actual dependency),
- child (of any age and irrespective of actual dependency), or
- another person in an interdependent relationship with the member at death.
Under most superannuation fund trust deeds, the trustee retains the discretion to decide how to pay out entitlements on death and this may not accord with a member’s wishes.
A valid BDBN removes this discretion from the trustees and provides certainty as to how entitlements will be paid on death. This is how the BDBN becomes a useful estate planning tool and one that needs to be considered in each client’s individual circumstances.
The utility of a BDBN was highlighted in three recent decisions of the Superannuation Complaints Tribunal (SCT).
The three decisions relate to the payment of a single deceased member’s entitlements from three separate superannuation funds.
The deceased was survived by his two children, his ex-partner and his mother. On death, all four family members claimed benefit from the funds. There were no BDBNs. It was therefore left to the trustees’ discretion as to who received the entitlements. No entitlements were paid to the estate to pass in accordance with the deceased member’s will or on intestacy.
The individual trustees of the three funds all made different decisions, giving different family members different percentages of the entitlements. The decisions were appealed to the SCT and subsequently the SCT altered one of the decisions. Therefore from the one fact scenario three different results occurred.
These decisions highlight the potential for different outcomes occurring over which a member has no control. This consequence can be avoided by considering a BDBN as part of a client’s estate planning.
You may achieve some estate planning goals by using a BDBN and giving a client certainty about how their superannuation entitlements will pass on death. Whilst it may not be appropriate in every estate plan, it is appropriate for a BDBN to be considered.