Despite superannuation funds often comprising significant assets, many are unaware that it is not automatically included as part of an estate’s assets and may not be distributed in accordance with a person’s Will.
You can control who receives the benefit of your superannuation upon your death by completing a Binding Death Benefit Nomination (BDBN).
What is a BDBN?
A BDBN is a notice given by you as a member of a superfund to the trustee of your superfund outlining who should receive the benefit of your superannuation upon your death. A BDBN imposes a direct duty on the trustee to then pay your death benefits in accordance with your wishes, as outlined in the BDBN.
What to think about when completing a BDBN?
There are a number of things to think about when completing your BDBN, including who you would like your superannuation to pass to and in what proportions, the legislative requirements for the validity of your BDBN and whether the BDBN will be lapsing or non-lapsing.
Arguably though, the most important thing to think about when signing a BDBN is the tax implications on your superannuation death benefits.
How your death benefit will be taxed will depend on a number of factors, including but not limited to:
• whether the benefit is paid to your dependent(s) or your legal personal representative; and
• whether the benefit is received as a lump sum or as an income stream.
For example, where the beneficiary of your death benefit is your dependant, it is likely that your superannuation will be paid to them tax-free if they receive it as a lump sum but could incur income tax after on any income earned if invested.
On the other hand, where the beneficiary is already able to access superannuation, such as a spouse, it is important to understand the difference between lump sum payments and distribution of the superannuation as an income stream. Keeping superannuation funds in a superfund and having it paid out as a pension may result in significantly reducing tax implications.
What happens if you don’t have a BDBN?
A recent decision of the Victorian Court of Appeal in the case of Wareham v Marsella demonstrates that in the absence of a valid BDBN, a trustee of a superfund must undertake a real and genuine consideration of the interests of all potential beneficiaries when exercising their discretion as to whom superannuation should be paid to.
The dispute in this case started when the husband of the deceased challenged the deceased’s daughter’s decision, as trustee of her mother’s superfund, to distribute the whole of the superannuation death benefit to herself. That decision fell to the deceased’s daughter in her capacity as trustee as the deceased had not made a valid BDBN.
As your superannuation is not automatically covered by your Will, it is important to consider how your superannuation should pass to your intended beneficiaries. In the absence of a valid BDBN, that decision will be made by the trustee of your superfund, who must consider the interests of all potential beneficiaries in exercising its discretion. Maintaining that discretion, as demonstrated in Wareham v Marsella, can result in disputes amongst family members and protracted legal proceedings. By completing a BDBN, you can ensure that you control who you want to receive your death benefits.
If you need assistance completing your BDBN or have any queries about your estate planning, please contact Kimi Shah.