SMSF BDBNs Part 3: When might a binding death benefit nomination be appropriate?

A non-exhaustive list of situations in which a binding death benefit nomination might be appropriate is:

1. At any time if the member can’t be assured of a fair outcome without it.
2. If the fund consists of more than a husband and wife.
3. A nomination ensures that the death benefits end up where the deceased wants them to go without the need to get trustee consensus.
4. In a husband and wife fund where there is a lack of trust between them.
5. Where provision is to be made for children when both spouses die, particularly:
6. In a blended family; or
7. Where not all children are trustees and relationships between children are not harmonious.
8. Where unequal provision is to be made, and death benefits are to be used to do it and particularly where not all of the recipients are trustees of the fund.
9. Where someone other than a superannuation dependent is to benefit, although here, the death benefits will first need to be paid to the estate of the deceased member and the will must make the gift of those benefits.
10. If superannuation is held in a non SMSF and a member wants their superannuation to be paid in a particular way, they should carefully consider this issue about whether they should or should not leave a binding death benefits nomination because in the case of a non SMSF, there is less likelihood that their wishes will happen without a binding nomination.

A nomination can be used to ensure that the death benefits pass in the way the deceased member wants.

If there are tax dependent and non tax dependent children, the nomination can also be used to ensure that the benefits pass not only fairly but tax effectively.

If equality is to be reached after giving tax dependent children the death benefits, a clause that leaves a legacy to non tax dependent children can cope with the different tax treatment of the payment of death benefits to tax dependents and non tax dependents.  This mechanism not only ensures equality but can avoid stamp duty problems in otherwise trying to get equality outside the terms of the will.  However, if the legacy is to work properly, there must be sufficient other personally owned assets of the deceased member to balance up paying the death benefits to the tax dependent children.

Of course the fund’s deed could leave the trustee enough discretion as to how the death benefits can be paid and assuming the surviving trustee does what the deceased would want and does it tax effectively, the same result can be achieved without a nomination.  This may still require an equality mechanism under the will.

What should you do when using a binding death benefit nomination?

If you want to leave a binding death benefit nomination, make sure that:

• Your SMSF trust deed permits them;
• You comply with the terms of the trust deed and the superannuation law in making it;
• It aligns with what you want to achieve in passing your wealth on your death, including under your will; and
• You constantly review it for its currency.

Disclaimer
The information in this article is general in nature and is not intended as legal advice.  You should not do or fail to do anything in reliance on information in it.  We do not accept any responsibility for any loss that you suffer if you do.  You should seek professional advice before you do anything about the issues set out in this article.