Most industry and retail superannuation funds, and almost all self-managed superannuation funds (SMSF), allow fund members to make binding death benefit nominations (BDBN).
Whether a fund allows for BDBN (lapsing or non-lapsing) will depend upon the terms of the governing trust deed, which is a document establishing the superannuation fund and sets out the rules for its management.
A BDBN document contains the fund member’s directions as to whom they wish to leave their superannuation death benefit. Once executed, depending upon the terms of the specific superannuation fund, it may need to be delivered to the trustee of the superannuation fund prior to death for it to be valid.
To be valid and binding, the BDBN needs to nominate a person (or more than one person) to whom the trustee of the superannuation fund is to pay the death benefit to in the event of the fund member’s death and the amount or percentage of the death benefit each person is to receive. A valid BDBN can nominate one or both of the following:
- the fund member’s legal personal representative; and/or
- a ‘dependant’ of the fund member, such as a spouse, de facto partner, child, or an individual who is in an ‘interdependent relationship’ with the deceased.
These nominations, provided they are prepared and executed in a manner that is consistent with both the applicable provisions of the Superannuation Industry (Supervision) Act 1993 (Cth) (SIS Act) and Superannuation Industry (Supervision) Regulations 1994 (Cth) (SIS Regulations), or with the fund’s trust deed, are binding on the trustee of the fund.
Upon the death of the deceased member, the trustee is bound to pay the death benefit in accordance with the terms of the BDBN. The BDBN will provide directions on how the death benefit is to be paid to the deceased member’s legal personal representative, their dependant(s), or a combination of the two.
Lapsing nominations
While many industry and retail superannuation funds allow their members to make a BDBN, the SIS Act, the SIS Regulations and the rules of some of these funds only allow their members to make a BDBN that is valid for three years from the date the member signs it. Such nominations are known as a ‘lapsing’ BDBN.
Where a superannuation fund only allows its members to put in place a lapsing BDBN, the fund members are required to execute a new BDBN periodically in order for it to remain binding in the event of their death.
If the member lets their BDBN lapse, it will not be binding on their fund’s trustee at the time of their death, and reverts to being a ‘non-binding death benefit nomination’. The fund’s trustee, however, can take the contents of the lapsed BDBN into account when deciding to whom to pay the death benefit to.
How must a BDBN be prepared and executed?
Although the rules of each superannuation fund may differ, for the BDBN to be valid in most cases, it must:
- be in writing and signed and dated by the fund member;
- be witnessed by two adults, both of whom must not be named in the BDBN, who witness the fund member signing the BDBN;
- contain a declaration signed and dated by both witnesses stating that the notice was signed by the member in their presence;
- nominate either the fund member’s legal personal representative, or a dependant of the fund member (as that term is defined in the SIS Act), or a combination of both, to receive the superannuation death benefit in the event of the member’s death; and
- be provided to the trustee of the fund.
The importance of a BDBN complying with the terms of the fund’s deed
In the case of Munro & Anor v Munro & Anor [2015] QSC 61 (Munro), a decision of the Supreme Court of Queensland, the Court reinforced the importance of ensuring a BDBN is prepared in accordance with the fund’s deed and adopts the required terminology.
In this case, Barrie Munro (Barrie) had practised as a solicitor until dying at the age of 66, and was survived by his second wife, Patricia, and his two daughters from his first marriage, Vanessa and Elke.
Following Barrie’s death, a dispute arose between Patricia on the one hand, and Vanessa and Elke on the other, as to what should happen to Barrie’s death benefit held within an SMSF he had established together with Patricia (the Fund).
Barrie and Patricia were named as the trustees of the Fund when it was established in 2004. When Barrie applied for membership of the Fund at the date it was established, he inserted in the part of the form for nominating dependants – ‘Trustee of my Estate’.
In 2006, Barrie signed a document entitled ‘Binding Nomination’, that purported to direct the Fund to pay his death benefits on his death ‘to my estate’. On the same day, Barrie executed a Will.
Barrie’s Will named Patricia, Vanessa, and Elke as executors, and left a gift of $350,000 to Patricia, with the balance of his estate being left to Vanessa and Elke equally.
In 2009, Barrie signed a printed form entitled ‘Binding death benefit nomination’, and in the section of the form that allowed for the specification of the nominated beneficiary, the following was typed:
| Nominated Beneficiary | Percentage of Benefit | Relationship |
| Trustee of Deceased Estate | 100% | Trustee |
Barrie signed this document, which was witnessed by Patricia and one of Patricia’s daughters.
After Barrie’s death, Patricia appointed one of her daughters as the other trustee of the Fund in Barrie’s place.
The Supreme Court of Queensland ultimately decided that the 2009 nomination:
- did not comply with the terms of the Fund’s deed or regulation 6.22 of the SIS Regulations, as it failed to nominate the executors of Barrie’s Will or one or more of his dependants; and
- was not a binding death benefit nomination.
The consequence of this decision was that Patricia and her daughter were empowered to make a decision as to whom to pay Barrie’s death benefit to, and Barrie’s wishes were not carried out.
Payment of death benefit by fund where a BDBN is in place
Where a deceased fund member has a valid BDBN in place, payment of a death benefit can be made relatively promptly by the superannuation fund, as the fund’s trustee is not required to decide to whom to pay the death benefit.
It is worth noting that where the deceased fund member had a life insurance policy in place within their fund, assessment by the insurer and payment of any benefit by the insurer to the fund can result in a delay in payment of the death benefit.
Conclusion
A consideration of the potential recipients of your superannuation death benefits is a crucial aspect of your estate plan.
The preparation of a valid BDBN is vital to ensure that your superannuation death benefit is paid in accordance with your wishes. The decision in Munro illustrates the importance of ensuring that a BDBN is prepared and executed in a way that satisfies the terms of a superannuation fund’s deed, and the SIS legislation. The interpretation of the fund’s deed should be carried out by a lawyer with expertise in this area of law. It is important to note that financial planners and accountants cannot provide legal advice.
Contact us
For tailored advice to meet your estate planning objectives, including BDBN, please contact our Wills, Trusts & Estates team.
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