A binding death benefit nomination (BDBN) is a direction to the trustee of your superannuation fund telling them who to pay your death benefits to when you die. It binds the fund for as long as it stays valid. Without one, your fund usually chooses who receives your benefits.
Who can you nominate in a BDBN?
You can’t nominate anyone you choose. The law limits who is eligible. Nominating someone outside that group makes your nomination invalid.
| You can nominate | You cannot nominate |
|---|---|
| a current spouse, including a de facto spouse | siblings |
| your children, including stepchildren | parents |
| someone who is financially dependent on you | grandparents |
| someone in an interdependent relationship with you | grandchildren |
| your legal personal representative, meaning the executor of your estate, for distribution under your Will | friends and charities |
Financial dependency and interdependency both have strict tests, so get advice from your lawyer or financial adviser before you rely on either one.
How does a BDBN relate to your Will?
Your BDBN decides whether your Will has anything to say about your superannuation at all. Where you nominate a person directly, your benefits and any life insurance in the fund are paid straight to them and any direction in your Will about your super is irrelevant because your super doesn’t form part of your estate.
Where you nominate your legal personal representative instead, the fund pays your benefits to the executor of your estate, who then gifts them under your Will. The BDBN acts as a bridge between your superannuation and your Will. That suits you if you want to leave your super to someone who can’t be nominated directly. It also suits a Will that includes one or more testamentary trusts.
Benefits paid into your estate are available to satisfy claims made against your estate, so you should take advice on this option if you are concerned your Will could be challenged.
How long does a BDBN last?
Most BDBNs last three years and then lapse, which means you have to renew them. Some are non-lapsing and continue until you die or change them. Some funds offer a Death Benefit Agreement instead, which works the same way as a BDBN but doesn’t expire.
Check which kind you have when you make it, because a lapsed nomination stops binding your fund and hands the decision back to the trustee. A nomination can also lapse on certain life events, for example marriage or divorce, depending on the rules of your fund.
What makes a BDBN invalid?
Small mistakes are what usually defeat a BDBN nomination. The fund isn’t obliged to warn you about them or tell you if the BDBN you have submitted is invalid. A BDBN can fail because:
- the person you nominated isn’t eligible, either when you made it or at the date of your death;
- the form wasn’t completed, signed or witnessed exactly as the fund requires;
- the fund never acknowledged receiving it; and
- it lapsed and wasn’t renewed.
Don’t confuse a BDBN with a non-binding or preferred beneficiary nomination, which most funds offer as a simple online form. Those are no more than an expression of your wishes. The trustee will consider a non-binding nomination, but isn’t obliged to follow it.
What are the advantages of a BDBN?
A BDBN gives you certainty about where your superannuation goes. The advantages are:
- the people you have chosen receive your benefits, rather than the people your fund selects;
- benefits paid directly to a person under a BDBN don’t form part of your estate, so they aren’t subject to claims challenging your Will; and
- your family is likely to receive the money faster than if the trustee has to decide or the benefits pass through your estate.
What are the disadvantages of a BDBN?
The cost of certainty is that you lock in a decision now for circumstances you can’t foresee. The disadvantages are:
- there are very strict signing and witnessing requirements for a valid BDBN, with small errors having defeated nominations in many reported cases;
- it needs reviewing as your circumstances change, in the same way your Will does; and
- it removes the trustee’s ability to respond to changes affecting you or your family, which can close off tax, asset protection and estate planning opportunities available at the date of your death.
Frequently asked questions
What happens if you die without a BDBN?
Your fund decides who will recieved your super death benefits (incuding life insurance within your fund). Most retail funds give the trustee a broad discretion over which of your dependants receives your benefits and in what shares. The trustee makes that decision privately.
Does a BDBN override your Will?
Yes, but only for your superannuation. A valid BDBN in favour of an eligible person is followed by your fund regardless of your Will says. Your Will only governs your super where the benefits are paid to your estate.
Can you have a BDBN and a reversionary pension?
Yes, though the two can conflict. Get specific advice, because the BDBN may not take effect until after both you and the reversionary pensioner have died.
Who makes a BDBN for you?
You make it directly with your fund on their own form. Your lawyer can prepare it and check it against your Will, but the fund has to receive and acknowledge it.
We can help you prepare your nomination and check it against your Will
We prepare Binding Death Benefit Nominations and make sure they work with your Will rather than against it. For a self-managed super fund we review your deed and trustee arrangements as well, so the right people receive your benefits and the right person takes control. Call the Wills team on (08) 9220 4433 or book an estate planning consultation.
Related: what happens to your superannuation when you die?
This article contains general information about superannuation death benefit nominations. It is not legal advice. You should obtain professional legal, taxation and financial advice about your estate planning.
