You might be surprised to learn that, when you die, your superannuation doesn’t automatically form part of your estate – which means it might not be distributed in accordance with your Will.  It’s also important to consider whether you need to make a binding death benefit nomination. 

A 2024 decision of the Federal Court of Australia has highlighted the importance of ensuring your estate planning documents are kept up to date as your circumstances change.

What Is a Binding Death Benefit Nomination?

A binding death benefit nomination (BDBN) is a legally binding directive from a member to their superannuation trustee that states how they want their super death benefit to be distributed when they die. It can include any insurance benefits you have.

2024 Federal Court Decision About BDBNs

In a June 2024 decision of the Federal Court of Australia, the deceased sent a text message to his sister before taking his own life. The text message began ‘This is my will’ and stated that he wanted to leave all his property and assets to his brother, sister, nieces and nephew. 

Regardless of the validity of this informal ‘Will’, there are certain assets that are not automatically dealt with by a Will alone. A common example is superannuation, which is distributed in accordance with any valid binding death benefit nomination (BDBN) in place at the date of death.

In this particular case, the deceased had made a BDBN only months earlier in favour of his de facto partner. A dispute arose as to whether the BDBN was valid. If it was, the de facto partner would receive around $1.2 million in superannuation death benefits (regardless of the deceased’s text message directing that his de facto partner was to receive nothing).

The validity of the BDBN depended on whether the de facto relationship had ended some time before the deceased’s death, in which case the BDBN would be invalid. Ultimately, the Federal Court overturned an earlier decision and determined that the deceased remained in the de facto relationship until his death and, therefore, the BDBN was valid. Accordingly, the superannuation benefits were paid to the de facto partner.

 

Binding Death Benefit Nominations

It’s important to have a Will in place to cover all assets that will form part of your estate. In respect of your superannuation death benefits, you should generally have a BDBN, as it provides certainty as to who will receive your benefits. It also usually means the funds will be paid out more quickly.

There are rules as to whom you can nominate as the beneficiaries of your superannuation benefits. Generally, you can nominate your spouse or de facto partner, children, or someone with whom you have an interdependent relationship. Alternatively, you can nominate your legal personal representative (LPR) to receive your superannuation benefits, which directs those funds into your estate to allow them to be distributed as per your Will. 

Tax outcomes may vary depending on whom you nominate as the beneficiary of your superannuation benefits. We recommend seeking advice from your estate planning lawyer and/or accountant before making your BDBN.

Once you have a valid BDBN in place, your super fund’s trustee will be bound to pay your superannuation benefits in accordance with it. If your circumstances change, amend your BDBN as necessary (for example, if you nominated your partner and your relationship breaks down, or if your beneficiary is at risk of bankruptcy). 

How Long Do BDBNs Last?

Many industry super funds allow members to make BDBNs that last 3 years from signing (unless revoked earlier). Some funds also allow non-lapsing BDBNs, which remain in place indefinitely unless revoked by the member. 

If you have a self-managed superannuation fund (SMSF), the trust deed will contain rules regarding the payment of your death benefits, including whether BDBNs can be made, how long they’re valid for, and any particular requirements that the BDBN must comply with. It’s important to obtain professional advice to ensure your BDBN is prepared in accordance with the rules of your SMSF and, if required, accepted by the trustee.

Make sure you set a reminder to update your BDBN at the end of the 3-year period if you don’t have a non-lapsing BDBN in place.

What Happens If I Don’t Have a Valid BDBN?

If you don’t have a BDBN in place, or if it’s found to be invalid, the trustee of your super fund will usually have discretion to decide how your superannuation death benefits will be paid out.

BDBNs may be found to be invalid if: 

• you nominate someone who isn’t an eligible beneficiary
• your relationship status changes (for example, if you divorce or terminate your de facto relationship)
• you lacked capacity at the time you made the BDBN
• there are circumstances of unconscionable conduct (for example, being pressured by someone to make the BDBN in their favour).

If you don’t have a valid BDBN, your super fund trustee will often investigate the potential claimants of your superannuation benefits, and decide whether to pay the benefits to the claimant(s) directly or pay your estate (in which case the funds will be distributed in accordance with your Will – or, if you don’t have a Will, the intestacy rules). 

Next Steps

To make sure your wishes are executed when you die, regularly review your estate planning documents, such as your Will, enduring power of attorney, and BDBN. If your circumstances change, seek legal advice and update your BDBN as soon as possible.

For personalised advice, get in touch with our Wills and estates team. We’ve been helping Queenslanders prepare documents like binding death benefit nominations for more than 65 years – find out how we can do the same for you.

 

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• Email: law@belllegal.com.au
• Phone: (07) 5597 3366