Bryan Ashenden, head of financial literacy and advocacy for BT Financial Services, said there are many examples of what can go wrong if death benefit nominations are not completed properly, especially in situations with complex family relationships.
“Consider a scenario of someone who might have multiple children with different partners. Or a person who might have adult children, and possibly grandchildren, but who chooses to remarry later in life,” Ashenden said.
“Or the person who has a child outside of a long-term marriage. In many of these scenarios, family dynamics – and estate planning needs – can shift quickly.”
Advisers need to be aware not just of their clients’ superannuation wishes in the event of their death, but also to remember super can only be distributed to someone who qualifies as a dependant at the time of death, or the estate, is important when family circumstances have changed.
There are four common death benefit nomination types used across the Australian superannuation landscape, the first being no nomination.
“Without a nomination, it’s up to the trustee to decide where the money goes,” Ashenden said.
“The trustee must act in accordance with its trust deed, and the trust deed for every super fund can be different. In BT Panorama, if there is no nomination, the trust deed directs us to pay the benefits to your estate, which then hinges entirely on your will and how well it has been drafted.”
The second type of death benefit nomination is a trustee discretion (non-binding) nomination which Ashenden said is, in essence, a request.
“The trustee is not obligated to follow it – although they typically will.”
“That might work well for some situations, however, it can leave the door open to dispute in complex family situations.”
The third type of nomination is a non-lapsing nomination, which doesn’t expire, doesn’t require the same formalities as a three-year binding death benefit nomination, and is generally binding under the trust deed.
“However, it can be invalidated by significant life events, such as marriage or the birth of a child,” Ashenden said.
“In such instances, the trustee can use discretion to reflect the member’s updated family circumstances when distributing benefits.”
The final type of nomination is the three-year binding death benefit nomination (BDBN), which strictly adheres to the deceased’s wishes. It is valid for three years and must be renewed with a signed, witnessed form.
“If not renewed, it reverts to trustee discretion (non-binding) nomination. Importantly, however, major life changes – such as marriage, divorce or children – do not automatically invalidate it.”
“For example, if you nominated your child as beneficiary and then divorce and remarry, that would not invalidate the binding nature of this type of nomination.”
He added that the child would remain the beneficiary until the BDBN was amended; however, the new spouse wouldn’t be entitled to anything unless the client actively changed the nomination.
