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Secure Your Superannuation with a Binding Death Benefit Nomination
 
 
   

Secure Your Superannuation with a Binding Death Benefit Nomination

News | Navjot Kaur | Released: 13/03/2025 | Read: 5 Mins

 

Did you know that your superannuation is not automatically distributed according to your will? Instead, the trustee(s) of your super fund decide how your benefits are allocated after your passing. That’s why having a Binding Death Benefit Nomination (BDBN) is crucial for ensuring your loved ones receive your benefits as intended.
   

What is a Binding Death Benefit Nomination?
   

A Binding Death Benefit Nomination (BDBN) is a legally enforceable directive that ensures your superannuation benefits are paid to your chosen dependents or legal representative upon your passing. Without a valid BDBN, the trustee(s) of your super fund have discretion in distributing your death benefits.

 

Types of Binding Death Benefit Nominations

 

1. Lapsing Binding Death Benefit Nomination

  • Validity: Expires after 3 years unless renewed.
  • Binding: The trustee must pay benefits to the nominated beneficiary, provided they are eligible.
  • Flexibility: Ensures updates to reflect changing relationships and circumstances.
  • Risk: If not renewed, the nomination lapses, and the trustee gains discretion over the benefit distribution.

2. Non-Lapsing Binding Death Benefit Nomination

  • Validity: Does not expire unless revoked or changed.
  • Binding: The trustee must follow the nomination.
  • Flexibility: Less flexible, as it remains unchanged unless manually updated.
  • Risk: If relationships change and the nomination is not updated, benefits may be paid to an unintended person.

3. Non-Binding Death Benefit Nomination

  • Validity: No expiry date.
  • Binding: Not binding—the trustee has discretion but considers the nomination.
  • Flexibility: Allows the trustee to adjust based on the deceased’s relationships at the time of death.
  • Risk: No certainty, as the trustee can decide differently from the nomination.
   

Who Can Be a Beneficiary?
   

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BINDING VERSUS NON - BINDING
  

 

Feature

Binding Death Benefit Nomination

Non-Binding Death Benefit Nomination

Definition

A legally enforceable direction to the Trustee specifying who will receive your superannuation benefits upon your death.

A request suggesting preferred beneficiaries, but the Trustee has discretion in making the final decision.

Trustee’s Obligation

Must follow the nomination as long as it is valid.

Considers the nomination but is not legally required to follow it.

Control Over Benefit Distribution

You have full control over who receives your benefits.

The Trustee has the final decision on how benefits are distributed.

Eligible Beneficiaries

Dependants and/or legal personal representative(s) as nominated.

Any dependant(s) and/or legal personal representative(s), as determined by the Trustee.

Level of Certainty

Provides certainty and ensures your wishes are honored.

Less certainty, as the Trustee makes the final decision.

 
   

How to Make a Valid BDBN?
   
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A Binding Death Benefit Nomination must:

 

✔️ Be in writing

✔️ Be signed and dated in the presence of two witnesses (over 18            and not listed as beneficiaries)

✔️ Include a declaration by witnesses confirming they were present

✔️ Be submitted to the trustee of your super fund

 

 

The Importance of a Binding Death Benefit Nomination

 

A Binding Death Benefit Nomination ensures that your superannuation is paid according to your wishes upon your passing. Without a valid nomination:

✔️The SMSF trustee decides how your superannuation is distributed.

✔️Your loved ones may face unnecessary legal disputes.

✔️Your adult children may be subjected to a death tax of up to 32%.
   

Key Risks of Not Having a BDBN

   

🔹 Trustee Discretion: Without a BDBN, the trustee of your superannuation fund has the authority to decide who receives your death benefits. This means the final distribution may not align with your wishes.

🔹 Legal Challenges: The absence of a BDBN can lead to disputes among potential beneficiaries, resulting in legal battles and delays in benefit distribution.

🔹 Intestate Succession: If you don’t have a will or a BDBN, your assets may be distributed according to intestacy laws, which dictate beneficiaries based on legal entitlement rather than your personal intentions.

🔹 Tax Implications: Different beneficiaries may have different tax liabilities. Without a nomination, you have no control over tax consequences, potentially leading to unnecessary tax burdens and reducing the overall benefit received by your loved ones.

🔹 Administrative Delays: Without a BDBN, the trustee must determine the rightful beneficiaries, which can be a lengthy process. This delay can cause financial hardship for dependents and increase the likelihood of disputes.

🔹 Take Control of Your Superannuation: To avoid these complications, it’s essential to regularly update and maintain a Binding Death Benefit Nomination with your superannuation fund. Additionally, ensure your will is up to date, as both documents should work together to achieve your intended estate planning outcomes.
   
   

Is Superannuation an Estate Asset?
   

No. Your superannuation does not automatically form part of your estate and will not be governed by your Will. Instead, the trustee of your Self-Managed Super Fund (SMSF) has discretion over the distribution of your superannuation unless you have a Binding Death Benefit Nomination (BDBN) in place.

 

Superannuation is a vital financial asset, yet many Australians are unaware that it is not automatically included in their estate. Without proper planning, your superannuation may not be distributed as per your wishes and could be subject to significant taxation.
   

How to Protect Your Superannuation?
   

A well-structured SMSF Binding Death Benefit Nomination (BDBN):

  • Overrides the trustee’s discretion, ensuring your benefits go to your chosen beneficiaries.
  • Reduces the tax burden by enabling strategic tax planning, such as directing benefits into a Superannuation Testamentary Trust.
  • Provides certainty that your loved ones will receive their entitlements without unnecessary delays or disputes.

Legal Considerations: Does Your SMSF Deed Allow for Binding Nominations?

Many SMSF deeds are outdated and do not comply with current laws. To ensure that your BDBN is valid and enforceable, it is crucial to:

  • Update your SMSF Trust Deed to allow for binding nominations.
  • Ensure compliance with the latest regulations and legal precedents such as Hill v Zuda Pty Ltd [2022] HCA 21.
  • Use the correct terminology—always nominate your Legal Personal Representative (LPR) instead of referencing your "estate" or "Will".

What Happens If There’s No Binding Nomination?

Without a binding nomination:

  • The trustee distributes your superannuation based on their discretion.
  • It may not be allocated as you intended.
  • A higher tax burden may be imposed on your beneficiaries.
  • Legal disputes can arise among family members.
   

How Can We Help?

 

Our SMSF Binding Nomination Kit ensures your superannuation is protected and distributed according to your wishes. The kit includes:

  • A fully compliant Binding Death Benefit Nomination (BDBN).
  • An Instruction sheet for accountants and auditors.

Take Control of Your Superannuation Today

Don’t leave your superannuation to chance. Ensure your assets are protected and your loved ones receive their fair share without unnecessary taxes and disputes.

For more information or to update your SMSF deed and binding nomination, please contact us today - 

(02) 9684 4199
  
UnderstandingBDBNs
 
   

Visit www.trustdeed.com.au for more details or call us on (02) 9684 4199
   

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