A Binding Death Benefit Nomination (BDBN) is an important legal document which sets out who will receive your superannuation benefits upon your death.
You could be wondering, "Absolute hogwash, I've got a Will already, so what's the need for this utter nonsense?" Excellent query! The fact of the matter is, your superannuation doesn't automatically become part of your estate to be divided according to your Will.
This is because superannuation in Australia is set up as a trust structure, where a trustee holds and manages the super fund for the benefit of the member (you). When you die, it is the trustee's responsibility to distribute your super death benefits in accordance with the super fund's governing rules and relevant laws, which often give the trustee discretion to determine who will receive the death benefits.
Another factor is that superannuation funds often include life insurance policies. As such, the payout upon death is not only the balance of the super fund but also the life insurance payout, which is usually a significant amount. This factor can complicate matters if not properly planned.
Due to these characteristics, superannuation does not automatically form part of your estate and, as a result, is not distributed through your Will. However, you can control where these funds go by making a Binding Death Benefit Nomination, nominating a beneficiary to whom the trustee will pay your death benefits.
Examples of What May Go Wrong
For illustrative purposes, let's consider a couple of scenarios that highlight the potential pitfalls when a Binding Death Benefit Nomination (BDBN) is not in place.
Take, for example, the case of Joanne, a middle-aged woman who tragically passed away after a sudden COVID-19 related illness. Joanne was divorced, and her two adult children, Olivia and Liam, were her only immediate family. However, Martin, her former husband, was still listed as her beneficiary on the superannuation fund because Joanne had not prepared a BDBN. Despite Joanne's intentions expressed in her Will, her substantial superannuation benefits went directly to Martin, bypassing Olivia and Liam entirely. This situation could have been avoided if Joanne had a BDBN in place, specifying her children as beneficiaries.
Now let’s take another example. George is a retiree in his late sixties who failed to update his BDBN after remarrying. When George passed away, his superannuation benefits were distributed to his children from his previous marriage, Alex and Sophie, instead of his current spouse, Caroline. As a result, Caroline faced financial hardship. An updated BDBN reflecting George's new marital status would have circumvented this unfortunate outcome.
The importance of a BDBN in estate planning is quite apparent and cannot be overstated. It not only grants you control over who receives your superannuation benefits, but also helps avoid potential disputes and hardship among your loved ones after your passing.
It is worth noting that a BDBN isn’t set-and-forget. It should be reviewed regularly, especially following major life events like marriage, divorce, or the birth of a child. Most BDBNs are only valid for a period of three years from the date they are first signed, witnessed, and dated. Once this three-year period has passed, the BDBN is said to have 'lapsed'. When a BDBN lapses, the trustee of your superannuation fund has the discretion to decide who will receive your death benefits. They can choose to distribute them among your dependants or to your estate. As such, if your BDBN has lapsed, it may mean that your superannuation benefits may not be distributed as you would have wished. Regular reviews with an experienced estate lawyer is therefore vital to ensure your BDBN aligns with your current circumstances and intentions.
While preparing a Will is a crucial step in your Estate Planning, including a carefully considered and thought-out Binding Death Benefit Nomination is equally important when it comes to your superannuation. After all, proper estate planning is about ensuring that your loved ones are provided for and your wishes are respected after your passing.
If you have any queries regarding BDBNs or any other estate planning matters, don't hesitate to seek professional advice and assistance from Surge Legal at 02 8722 5021 or book a free consultation via our book online page.