Nicholas Ali, head of technical services for Neo Super, says that since super is not an estate asset, BDBNs can be a way to direct SMSF trustees to pay benefits in line with members’ wishes.
“We field calls on a regular basis from clients and potential clients that wrongly assume their superannuation benefit is paid according to their will,” Ali said.
“However, a member’s superannuation benefit does not form part of their estate. Superannuation is not an estate asset.”
A BDBN can include directions to pay super death benefits to the deceased’s legal personal representative, effectively ensuring death benefits can be distributed per the deceased’s will.
“However, care needs to be taken to ensure they truly reflect the current wishes of the member,” Ali said.
“Broader estate and succession matters also need to be carefully considered, to ensure those controlling the fund are going to follow the deceased’s wishes.”
When a member dies, the trustee of the fund determines where the deceased’s super benefit will be paid.
“Ordinarily, a trustee’s discretion in this matter cannot be fettered, unless the member has completed a BDBN,” Ali added.
He continued that in APRA-regulated super funds, the form and function of a BDBN is determined by super legislation and regulations, but with SMSFs, the case is a little different.
“When it comes to SMSFs, however, the form and function of a BDBN is determined by the fund’s governing rules, which usually means the fund’s trust deed.”
“This means, in theory at least, an SMSF can have a more flexible and precise BDBN than their larger superannuation counterparts.”
There are some key advantages of having a BDBN, especially in the context of an SMSF, he added, including greater certainty and control.
“A BDBN can remove the discretionary decision a trustee makes with a member’s death benefit. It can also save time in the payment of benefits because without a BDBN a trustee may be required to undertake a rigorous process to determine to whom and how much of the deceased’s benefit is to be paid to beneficiaries.,” he said.
“[Another advantage] is that it can minimise conflicts and legal fees. Often disputes arise where an SMSF member does not have a valid BDBN, with numerous case law examples showing just how erroneous death benefit payment can get.”
While often beneficial, BDBNs are not a panacea for all super estate planning matters.
“They are not infallible. If a trustee chooses to ignore a valid BDBN, things can still go awry. The adage ‘possession is nine-tenths of the law’ often applies in death benefit disputes.”
“They can also be inflexible as when family dynamics change, such as marriage breakdown, it may mean a BDBN needs to be replaced to reflect a change in member circumstance.”
Most importantly, a BDBN must be executed properly and Ali emphasised there are many legal examples of what can go wrong if this is not done, which leads to undesirable outcomes and expensive legal fees.
