Your superannuation is generally one of your biggest investment assets. It comes as a surprise to many that its distribution is not determined by your Will. Instead, it is distributed by your Superannuation Fund’s trustee in accordance with the Fund’s rules. A Binding Death Benefit Nomination (“BDBN”) is one of the ways you can ensure that the trustee distributes your superannuation benefits in the way you wish.
A BDBN is a notice that you give to the trustee of your superannuation fund requiring a death benefit to be paid to nominated dependants and/or the executor of your Will. Your dependants include your spouse, children, step children, any person you have an interdependency relationship with, or anyone who is financially dependent on you. You can only make a BDBN if your Fund’s governing rules allow.
While a BDBN provides the advantage of certainty, it carries the risk that if it is not reviewed and updated regularly as personal and family circumstances change, it can result in inappropriate outcomes. For example, a BDBN in favour of a former spouse, or perhaps a bankrupt child might mean that your loved ones don’t benefit from the assets that you’ve grown over many years. You can avoid this problem by reviewing your estate plan regularly.
Often BDBN’s are confused with reversionary pensions. A reversionary pension is a pension that, on the death of the original member, continues to be paid to a nominated reversionary beneficiary. The pension doesn’t cease – it simply continues to be paid to the reversionary pensioner.
A reversionary pension is often a good option if your superannuation accounts have been converted to pensions. They allow you to provide for death benefits to spouses and minor children. Reversionary pensions, however, can’t be used for lump sum payments, nor can they be used for payments to adult children or to the executor of your estate. In such circumstances a BDBN may be your best option.
As with all estate planning matters, it is critical that you seek qualified advice and regularly review your plans.
Kreston Stanley Williamson Team
*Correct as of March 2015
*Disclaimer – this article has been produced by Kreston Stanley Williamson as a service to its clients and associates. The information contained in the article is of general comment only and is not intended to be advice on any particular matter. Before acting on any areas contained in this article, it is imperative you seek specific advice relating to your particular circumstances. Liability limited by a scheme approved under professional standards legislation.