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Binding Death Benefit Nomination

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Binding Death Benefit NominationPOA
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What’s in our package:

  • letter
  • checklist
  • binding nomination
  • trustee minutes
  • notifications to dependants and
  • detailed explanatory memo.

Why should I have a Binding Death Benefit Nomination?

Aside from the family home, a person’s superannuation benefit (eg, the member’s account balance and/or insurance proceeds) is often their most significant asset. Yet many people are unaware that their superannuation benefit is not covered by their will. Under most SMSF deeds, payment of a death benefit is left to the trustee’s discretion in the absence of some form of binding direction, such as a binding death benefit nomination (‘BDBN’) or an automatically reversionary pension. Accordingly, a BDBN can play a crucial role if a member would like certainty as to who gets their super proceeds on their death.

It is vital that BDBNs are prepared in conjunction with a member’s estate and succession plans, including their will, and not in isolation.

Many BDBNs merely nominate one person as part of a simple pro-forma nomination, eg, the person’s spouse or children, without any further direction being given. Such standard form nominations are generally incapable of addressing more complex issues, including where nominated beneficiaries predecease the member. For example, in the case of a couple with children, a BDBN can be used to distribute super to the children equally should both spouses fail to survive. However, if a child predeceases the member leaving children of their own, then these grandchildren are generally not ‘dependants’ in respect of the deceased for super purposes. Thus, a benefit that is purportedly directed to the grandchildren in these circumstances will fail unless it is paid to the member’s estate to be dealt with in accordance with the person’s will. These potential outcomes require careful consideration and drafting of the BDBN and will.

Furthermore, there are numerous points of weakness whereby standard BDBN documents can be rendered ineffective and non-binding. One of the most common points of weakness for a BDBN is where the governing rules of the SMSF and/or the BDBN documents incorporate the BDBN requirements in reg 6.17A of the Superannuation Industry (Supervision) Regulations 1994 (Cth), including the 3 year sunset provision. Accordingly, many BDBNs will expire at the end of 3 years. Needless to say, 3 years is not a long period of time, and once that time has elapsed, a person can be left without any BDBN unless an indefinite or non-lapsing BDBN is used with an appropriately drafted SMSF deed.

Naturally, DBA Lawyers’ SMSF and BDBN documents address the above issues as they allow for effective cascading nominations to be made that do not lapse after 3 years. DBA Lawyers’ SMSF governing rules expressly exclude the BDBN requirements in reg 6.17A so indefinite, non-lapsing nominations are possible. Nevertheless, we recommend that a person’s BDBN and estate plans should generally be reviewed at least every three years and revised if necessary.

The Product Disclosure Statement provided for each fund member with all DBA Lawyers’ SMSF documents (both for new SMSFs and SMSF deed updates) includes a free BDBN template.

We also offer a premium BDBN service for those wanting a tailored BDBN prepared by an expert SMSF lawyer having regard to your particular background circumstances.

We can provide an estimate in respect of completing your BDBN once we have your instructions and background details, including a copy of your current SMSF deed and will.

For further information about SMSF succession planning strategies, please refer to the following article:

https://www.dbalawyers.com.au/smsf-succession-planning

For further reading about BDBNs, please refer to the following articles:

https://www.dbalawyers.com.au/smsf-deeds/the-legal-minefield-of-bdbns/

https://www.dbalawyers.com.au/smsf-deeds/another-bdbn-fails-due-to-poor-smsf-documents/

https://www.dbalawyers.com.au/pensions/what-wins-out-an-automatically-reversionary-pension-arp-or-a-binding-death-benefit-nomination-bdbn/

https://www.dbalawyers.com.au/smsf-deeds/smsf-succession-strategies/

https://www.dbalawyers.com.au/announcements/automatic-pension-reversion-still-worthwhile/

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