Estate Planning: Is your Binding Death Benefit nomination really binding?

A Binding Death Benefit Nomination, otherwise known as a BDBN, is a notice given by a member to the trustee of their super fund which imposes a direct duty on the trustee to pay their death benefits in accordance with their wishes specified in that notice. In the absence of a BDBN the trustee can exercise its discretion when paying your death benefit. 

A BDBN is essentially another layer of security or reassurance that your wishes on your death will be followed. Whilst this is the intention, is your BDBN really binding?

There are certain requirements for a BDBN to be valid. The failure to properly complete or execute a BDBN creates the potential for the nomination to be invalid. 

Generally, for a BDBN to be valid:

• it must be properly executed in accordance with the rules outlined in the trust deed

• it must be in writing; and

• it must be signed and dated by the member in the presence of two witnesses.

Importantly, the provisions of the fund trust deed must permit the making of a BDBN. A BDBN within an SMSF does not necessarily have to expire at the end of three years from signing unless the three-year lapsing rule has been specifically inserted into the fund’s trust deed. There are however circumstances in which SIS Regulation 6.17A (which includes the requirement that it expires after three years) may be incorporated into SMSF Trust Deed provisions, see the cases of Munro and Narumon by way of example. 

The current SIS regulations require the presence of the actual witnesses (two adult independent witnesses) when the member signs the form rendering electronic witnessing provisions problematic. 

Additionally, any BDBN should be properly completed by the member prior to the form being signed remembering that SIS Regulation 6.22 only allows a payment in favour of a dependent or legal personal representative. 

Getting a BDBN is no easy task and it is often the case that the invalidity of a BDBN is exposed after death. It is a good idea particularly in the SMSF space where the many pitfalls of a BDBN is highlighted in the case law to revise your BDBN if you have one and ensure that it meets the various validity hurdles. If you do not have a BDBN you might consider whether this is appropriate as part of your estate planning. 

If you have gone to the trouble of making a BDBN remember to also make sure that it is valid.