Binding Death Benefit Nominations (BDBN) play a pivotal role in estate planning in Australia. They provide an instrument for individuals to decide the beneficiaries of their superannuation fund benefits in the event of their death.
While BDBNs offer certain advantages, such as giving certainty in beneficiary designation and bypassing the probate process, they also carry potential disadvantages, like a lack of flexibility and the need for regular renewal.
This article written by our estate planning lawyers provides a balanced and informative overview of the advantages and disadvantages of Binding Death Benefit Nominations.
Binding Death Benefit Nomination Advantages
A Binding Death Benefit Nomination (BDBN) has several advantages for residents of Queensland (and Australia more broadly):
Certainty: The main advantage of a BDBN is that it provides assurance. It allows you to choose who will receive your superannuation benefits when you pass away, reducing the risk of disputes between beneficiaries.
Avoiding Probate Delays: A BDBN allows the superannuation death benefits to be paid directly to your nominated beneficiaries without going through the probate process, which can be lengthy and costly.
Control over Tax Outcomes: Different beneficiaries can have different tax implications. By nominating beneficiaries directly, you can control to whom the benefits are paid and thus manage potential tax outcomes.
Flexibility: A BDBN can override the trustee’s discretion and ensure your benefits are distributed according to your wishes, even if these differ from what would typically be considered fair or reasonable.
Binding on the Trustee: As long as the BDBN is valid, the superannuation fund’s trustee must follow it, even if your personal circumstances have changed since the BDBN was made. This assures that your wishes will be followed.
These advantages make a BDBN an essential consideration in estate planning. It’s recommended to seek professional advice to ensure it fits appropriately with your other estate planning strategies.
Learn more: Overseas Inheritance Tax in Australia
Binding Death Benefit Nomination Potential Disadvantages
While a Binding Death Benefit Nomination (BDBN) provides several benefits, it’s also essential to consider its potential downsides:
Regular Updates Required: A BDBN must be renewed every three years to remain valid unless it is a non-lapsing nomination. This requirement must be addressed, leading to an expired BDBN and potentially undesired outcomes.
Limited Beneficiary Options: BDBN allows nominations only for dependants and your legal personal representative. If you wish to leave your superannuation benefits to someone outside these categories, a BDBN must find a way to accommodate that.
Fixed Distribution: A BDBN distributes your superannuation benefits as per the specified proportion, irrespective of changes in circumstances. If your situation changes (like divorce or new children), and you don’t update the BDBN, it could lead to unfair distribution.
Legal Formalities: For a BDBN to be valid, it must meet specific legal requirements, such as being witnessed correctly. Failure to comply with these requirements can render the BDBN invalid.
Inconsistency with Other Estate Plans: If your BDBN is inconsistent with your will or other estate planning documents, it may lead to disputes and potential legal challenges.
Binding Death Benefit Nomination Process with Existing Estate Plans
Here’s how a BDBN interacts with existing estate plans:
BDBN and Your Will: While your will covers most of your assets, it does not directly control your superannuation benefits. Suppose you want your super to form part of your estate and be distributed according to your will. In that case, you can use a BDBN to nominate your legal personal representative (executor of your will) as the beneficiary. However, if your BDBN contradicts your will, this could lead to disputes or legal challenges.
BDBN and Family Trusts: If you have a family trust in place and want your superannuation benefits to be directed there after your death, you must nominate your legal personal representative in the BDBN and for this purpose, it’s advisable to seek assistance from a will and trust attorney. The super death benefits will then be paid to your estate, and your will can direct the benefits to the family trust.
BDBN and Testamentary Trusts: Similar to the family trust, if you want your superannuation to be distributed through a testamentary trust (established by your will upon your death), you should nominate your legal personal representative in the BDBN. The benefits would then flow into your estate and be distributed according to the terms of your will, including any testamentary trusts.
BDBN and Powers of Attorney: A person holding your power of attorney cannot make or renew a BDBN on your behalf unless specifically authorised to do so in the power of attorney document. This could be an essential consideration if you lose the capacity to manage your affairs.
What Should You Consider When Updating or Creating a Binding Death Benefit Nomination?
Creating or updating a Binding Death Benefit Nomination (BDBN) is a significant decision that needs careful consideration. Here are some important factors to consider when dealing with a BDBN in Queensland, Australia:
Eligible Nominees: Ensure that your nominees qualify under superannuation law. The nomination can only be made in favour of dependants or your legal personal representative (executor of your will or administrator of your estate).
Validity of the Nomination: A BDBN must comply with specific requirements to be valid, including being witnessed by two adults who are not beneficiaries of the nomination. Incorrect witnessing can invalidate your nomination.
Regular Reviews: Regularly review your BDBN, especially after significant life events such as marriage, divorce, the birth of a child, or the death of a nominated beneficiary. Also, remember to renew your nomination every three years unless it’s a non-lapsing nomination.
Consistency with Other Estate Plans: Ensure that your BDBN is consistent with your overall estate plan, including your will, to avoid potential disputes.
Tax Implications: Different beneficiaries may have different tax implications. Consider these when deciding whom to nominate.
Legal and Financial Advice: Given the complexity and potential pitfalls of a BDBN, it’s advisable to seek legal and financial advice. A professional can guide you through the process and help ensure your nomination is valid and aligns with your overall estate planning goals.
Common Misconceptions and FAQs about Binding Death Benefit Nominations
Many misconceptions and questions exist about Binding Death Benefit Nominations (BDBN) in Queensland and throughout Australia. Here are a few:
Misconception: A BDBN Covers All My Assets
A BDBN only covers your superannuation benefits. Other assets, such as real estate, personal belongings, and investments, are typically protected by your will.
Misconception: My Will Overrules My BDBN
A valid BDBN takes precedence over your will when distributing your superannuation benefits. If you want your super to form part of your estate and be distributed according to your will, you must nominate your legal personal representative in the BDBN.
Misconception: A BDBN Lasts Forever
Most BDBNs must be renewed every three years to remain valid. However, some superannuation funds offer non-lapsing BDBNs that do not require regular renewals.
FAQ: Can I Nominate Anyone in My BDBN?
No, you can only nominate dependants (as defined by superannuation law) and your legal personal representative.
FAQ: Can My Power of Attorney Update My BDBN?
A person holding your power of attorney can only usually make or renew a BDBN on your behalf if specifically authorised to do so in the power of attorney document.
FAQ: What Happens If I Don’t Make a BDBN?
If you don’t make a BDBN, the trustee of your super fund decides who receives your benefits when you die, usually considering your dependants and your estate.
Walker Pender Group Assists Clients in Understanding Binding Death Benefit Nominations
Our client, a businesswoman and mother, sought guidance from the Walker Pender Lawyers on Binding Death Benefit Nominations (BDBN) for her estate planning.
We explained the advantages of BDBN, like ensuring her beneficiaries receive superannuation benefits promptly and bypassing probate. Yet, we also highlighted disadvantages, such as the need for regular renewals and limited flexibility.
We developed a personalised strategy balancing BDBN benefits with other legal instruments to meet her needs. The client left satisfied, clearly understanding BDBN and a comprehensive estate plan aligned with her wishes.
Considering a Binding Death Benefit Nomination for Your Estate Plan?
Need help with its advantages and disadvantages?
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