Protecting Your Estate with a BDBN
Many people don’t realise that their Will does not automatically cover their superannuation. Without proper consideration, this can have serious consequences for those left behind.
A Binding Death Benefit Nomination (BDBN) can help to ensure your wishes are carried out as to what will happen to your superannuation fund upon death.
What is a BDBN?
A Binding Death Benefit Nomination (BDBN) is a direction to the Trustee stating the manner in which the death benefits should be paid on the death of the member.
BDBNs can be instrumental in ensuring superannuation death benefits are paid to the deceased’s intended recipients, as if the BDBN is valid and in effect at the time of death, the Trustee must pay the benefit to the Beneficiaries nominated in the proportions set out in the BDBN.
BDBNs can be lapsing, which means they are only valid for a pre-defined amount of time, or non-lapsing, which means they are valid indefinitely. It’s important to note that in certain circumstances, a BDBN may be rendered invalid; particularly where the BDBN may expire or where there is a slight defect in the BDBN document.
The recent case of Munro V Munro highlights a circumstance where the death benefit nomination of the deceased was not taken into account.
Case Study: Munro V Munro
Munro v Munro is a recent case involving a BDBN for a Self Managed Super Fund (SMSF). The deceased, Mr Munro and his wife Mrs Munro were both members and Trustees of the SMSF. Before his death, Mr Munro created a document entitled ‘Binding Death Benefit Nomination’ which specified that 100% of his benefits should be paid to the ‘Trustee of Deceased Estate’ and distributed according to his Will, which provided for Mrs Munro and his two daughters (who were not the daughters of Mrs Munro).
The death benefit nomination was however considered invalid by the Court, as superannuation law requires payments to be made to ‘dependants’ or ‘legal personal representatives’, which the term ‘Trustee of Deceased Estate’ did not comply with.
While it was argued that ‘Trustee of Deceased Estate’ referred to Mr Munro’s executors, the judge stated that the terms ‘Executor’ and ‘Trustee’ are distinct, although often colloquially used interchangeably. As a result, the term ‘Trustee of Deceased Estate’ was insufficient to direct the Trustee to pay the benefits to Mr Munro’s executors and the death benefit nomination was declared not binding.