A recent ABC News article, “More than 15.5 million Australians could have no say in who inherits their superannuation”, has put Binding Death Benefit Nominations firmly in the spotlight.
The article reports that millions of Australians do not have a Binding Death Benefit Nomination in place and features the story of two nieces who were left disappointed by what happened to their uncle’s superannuation following his death.
Whilst we all feel for the plight of the two nieces featured in the story, there is an important point that can easily be missed.
Even if their uncle had completed a Binding Death Benefit Nomination naming his two nieces, the trustee of the superannuation fund could not have followed it unless the nieces satisfied the strict legal requirements governing who can receive a superannuation death benefit directly.
For experienced estate planning lawyers, it is not difficult to see what may have happened. The deceased appears to have completed a Binding Death Benefit Nomination form naming his nieces and may well have believed that, by doing so, he had put his affairs in order and ensured his wishes would be followed. He may even have lodged the form with his superannuation fund. So why did his superannuation instead pass to his estranged son?
The answer lies in an important limitation on Binding Death Benefit Nominations that many people simply do not know about.
Why?
There are strict rules about who can receive a superannuation death benefit under a Binding Death Benefit Nomination.
Broadly, a member can nominate their Legal Personal Representative (in effect, their estate) or a person who qualifies as their dependent for superannuation law purposes.
Being a niece or nephew does not, by itself, satisfy those requirements.
So, unless the nieces independently qualified as dependents under the relevant rules, a Binding Death Benefit Nomination made directly in their favour would not have achieved the intended outcome.
In other words, the lesson from the ABC article is more nuanced than simply saying, “He should have had a Binding Death Benefit Nomination.”
Could the ending have been different?
Likely, yes.
If the deceased wanted his nieces ultimately to benefit from his superannuation, he could have considered making a Binding Death Benefit Nomination directing his superannuation death benefit to his Legal Personal Representative.
Provided that nomination was correctly prepared and signed, the superannuation death benefit would then be paid to his estate.
His Will could then provide for the benefit to pass to his nieces, subject, of course, to any valid claims against his estate.
That is why your superannuation and your Will should not be considered in isolation. They need to work together as part of a properly considered estate plan.
Four Key Takeaways
1. When it comes to super, your Will is not enough.
Your superannuation does not automatically form part of your estate and is not necessarily distributed according to your Will. Your superannuation death benefit arrangements need to be considered separately—but coordinated with your Will and broader estate plan.
2. You cannot simply nominate anyone you choose under a Binding Death Benefit Nomination.
There are strict legal rules about who can receive your superannuation death benefit directly. If you want to benefit someone who does not satisfy those rules, you should consider whether your Binding Death Benefit Nomination should instead nominate your Legal Personal Representative (your estate).
3. Your Will provides the pathway to your intended beneficiaries.
If your Binding Death Benefit Nomination validly nominates your Legal Personal Representative and is correctly prepared and signed, your superannuation death benefit will be paid to your estate. It can then be distributed under your Will to the beneficiaries you have chosen—including people who could not have been nominated directly under your Binding Death Benefit Nomination—subject, of course, to any valid claims against your estate.
4. It can be very risky to DIY.
Binding Death Benefit Nominations are technical legal documents. Getting the beneficiary, wording, execution or interaction with your Will wrong can mean that the nomination is invalid or does not achieve the outcome you intended.
The ABC article is a timely reminder that having a Will is only one part of effective estate planning.
At Penmans, we can help ensure your Will, superannuation death benefit nominations and broader estate planning arrangements work together to achieve your intended outcome.
Learn more about how the expert team at Penmans can assist you with your superannuation nomination and your Will, and about our transparent fixed fee pricing here.