Understanding Binding Death Benefit Nominations (BDBN)

Many people assume their superannuation will automatically go to their loved ones when they pass away. Unfortunately, that’s not always the case. Unlike other assets covered by a will, your superannuation is handled separately. To ensure it goes to the right people, you need a Binding Death Benefit Nomination (BDBN).

What is a Binding Death Benefit Nomination?

A BDBN is a formal directive you provide to your superannuation fund, specifying who should receive your superannuation benefits when you die. If the nomination is valid, the fund must follow your instructions. This provides certainty that your super will be distributed according to your wishes.

Without a BDBN, the fund decides how to distribute your super, which may not align with your intentions. In such cases, the fund typically follows specific rules regarding dependants.

Three-Year Expiry Rule

Most BDBNs are valid for three years. After that, they expire, and the fund will decide how to distribute your super if you haven’t renewed the nomination.

To prevent your BDBN from lapsing, it’s wise to review it periodically, especially after major life events like marriage, divorce, or having children.

Non-Lapsing Binding Nominations

Some super funds offer non-lapsing nominations that do not expire. Once you make a valid non-lapsing nomination, it stays in effect until you update or cancel it.

However, not all funds provide this option, and each fund has specific rules. It’s important to check with your super fund to see if a non-lapsing nomination is available and what conditions apply.

BDBNs in SMSFs

If you have a Self-Managed Superannuation Fund (SMSF), BDBN rules can differ significantly from those in retail or industry funds.

• No Expiry Rule: Many SMSFs do not require BDBNs to be renewed unless specified in the trust deed.
• Customised Rules: The trust deed governs the rules for binding nominations. Some SMSFs permit non-lapsing nominations or allow cascading nominations (nominating a secondary beneficiary if the primary one passes away).
• Trustee Control: Since SMSF trustees are often also fund members, conflicts of interest can arise. A clear, well-structured BDBN can help avoid disputes among beneficiaries.

If you manage an SMSF, it’s crucial to review the trust deed and ensure your nomination aligns with the fund’s rules.

Who Can Be Nominated?

You can only nominate certain eligible beneficiaries, such as:

• Your spouse (including de facto or same-sex partners)
• Your children (including adopted or stepchildren)
• Financial dependants (people who rely on you financially)
• Interdependent (someone with whom you share a close personal and financial relationship)
• Your legal personal representative (your estate, to be distributed according to your will)

If you nominate someone who isn’t eligible, your nomination will be considered invalid, and the fund trustee will decide how your super is distributed.

Steps to Make a Valid BDBN

To ensure your BDBN is legally binding:

1. Review the fund’s rules, as each fund may have different requirements.
2. Complete the fund’s specific BDBN form.
3. Nominate eligible beneficiaries or your estate.
4. Ensure the allocation adds up to 100%.
5. Sign and date the form in the presence of two independent witnesses (over 18 and not beneficiaries).
6. Submit the completed form to your super fund.

Final Thoughts

A BDBN is a vital tool for ensuring your superannuation benefits are distributed according to your wishes. Without it, your fund will decide how to allocate your super, and the outcome may not align with your intentions.

Whether you opt for a standard three-year nomination, a non-lapsing nomination, or an SMSF-specific arrangement, keeping your BDBN up to date ensures your super goes to the right people. Review your fund’s rules and take the necessary steps to safeguard your superannuation benefits.