For many people it might come as a surprise to learn that the most important estate planning tool for dealing with the payment of their interest in a superannuation fund is not a will. Rather, the most important tool for this purpose is a Binding Death Benefit Nomination (BDBN).
This situation arises because a superannuation fund is a special type of trust that must comply with numerous laws and regulations to receive concessional taxation treatment. Your interest in a super fund is an interest in a trust and your rights as a beneficiary of that trust are ultimately determined by its trust deed. In fact, you do not personally own the wealth in your super, especially a self-managed super fund (SMSF), because it is held in one or more separate legal entities. More critically, the trustee of the fund has the discretion over the payment of benefits from your super fund.
In many cases, your super instructions will override your Will. And your Will cannot deal with your SMSF interest unless the trustee of the fund, in its discretion, decides to pay the superannuation interest to your deceased estate. So how do you ensure that your wealth is used in the manner that you want for proper estate planning?
The trust deed of your SMSF can define the circumstances under which the trustee will follow a direction given by you to the trustee. This can deal with the manner in which and to whom your superannuation interest is to be paid upon your death.
Many large public offer superannuation funds permit a member to make a Death Benefit Nomination, often on a Binding or Non-binding basis, which the trustee is either contractually bound to follow (if Binding) or may take into its consideration (if Non-binding) in paying a death benefit from the fund.
The nomination must be binding to provide certainty, and ideally it should be non-lapsing so that any strategy based on the nomination will not accidentally lapse. That’s why the Binding Death Benefit Nomination is the most important estate planning tool dealing with the payment of your interest in a superannuation fund.
A BDBN is especially useful in the context of a SMSF, because what might be achieved through the use of a BDBN for estate planning purposes is limited only by the trust deed for the fund. Depending upon the specific terms of the SMSF trust deed, it may be possible to create a BDBN that can implement special and creative strategies for SMSFs, such as creating a life estate over the superannuation interest in favour of your spouse or providing for contingencies, such as where an intended recipient fails to survive you.
It all really depends on what your SMSF trust deed says, and therefore before using a specific BDBN strategy make sure you review the SMSF trust deed to ensure that it authorises the making of such tailored BDBNs. If necessary, arrange for the trust deed to be updated accordingly.
Media enquiries:
Brian Hor
Special Counsel – Estate Planning & Superannuation
Townsends Business & Corporate Lawyers
(02) 8296-6203 0401 122 338
Twitter: @TownsendsLaw
brian[AT]townsendslaw.com.au
townsendslaw.com.au