By Vicky Richards
Do you need a BDBN?
Did you know that your will does not have the power to distribute your superannuation death benefits? This is a common misconception.
Under superannuation law, if you should die and you do not leave a valid binding death benefit nomination (BDBN) the Trustee of your super fund decides which of your dependants will receive your super. The only way to ensure that your superannuation benefits pass to those you wish to benefit, is to leave a BDBN which instructs the Trustee how to pay your death benefit. Provided the BDBN is valid it is legally binding, and the Trustee must follow it. Wills or non-binding nominations are not legally binding on the Trustee.
An added complexity exists with SMSFs as the death of a member also means that a trustee vacancy can arise. Without a BDBN this situation can be potentially exploited by the remaining trustees to divert death benefits in a way that was not intended by the deceased.
The growing importance of superannuation means that increasing numbers of cases are coming before the courts illustrating the risks of relying on a will and failing to have proper estate plans in place, especially when a SMSF is involved. There have been many well-publicised cases in which one beneficiary has benefited to the exclusion of another where a valid BDBN did not exist, such as Katz vs. Grossman. This case highlighted spectacularly the need for a BDBN, particularly where there are individual trustees of a SMSF.
To help protect your SMSF and your super benefits from this type of situation you should consider using a corporate trustee structure as it handles succession issues much better than having individual trustees. Also consider whether a BDBN is prudent for your circumstances. BDBN’s are effective but it is vital that the nomination is considered along with your estate plan.
With the complexities of tax and super law, it is very important to seek appropriate advice to ensure that the BDBN is valid and will have the desired effect. There may also be very significant taxation consequences if your super payment is directed to the wrong party, or no appropriate direction is given.
It is better to work with your accountant, financial adviser and solicitor to ensure that you have appropriate measures in place to protect your loved ones, and to help them to avoid disputes, possible estate litigation and the stress and expense of uncertainty should you die.
Whilst we all know that this is important, it is often a matter which is put aside for another day (by which time it may be too late). If you think this is not important, now, just consider the alternative.