Why a Will is not the way to bequeath your superannuation

When most people think about their estate plan, they focus on their Will as the document that distributes everything they own. However, superannuation makes up a significant portion of a person’s wealth, and what many people don’t realise is that it does not automatically form part of their estate. Instead of forming part of your Will, the distribution of superannuation is governed by superannuation law and the provisions of your fund’s trust deed. This means that unless you put the right steps in place, your superannuation may not end up with the people you intended.

A Binding Death Benefit Nomination (BDBN) is essentially a legal instruction to your superannuation fund that tells the trustee exactly who should receive your superannuation benefits when you die (whether specific people or your estate). When done correctly, a BDBN gives you certainty and makes the trustee of the fund legally bound to follow your wishes. When done incorrectly, however, the trustee may have discretion to decide who receives your super - sometimes with very surprising results.

Common BDBN mistakes we see

Nominating someone who isn’t eligible

Superannuation law only allows you to nominate certain categories of beneficiaries (e.g., your spouse, children, financial dependants, or your legal personal representative). Nominating someone outside these categories, such as a parent or a sibling that you don’t support financially, could make the nomination invalid.

Overlooking changes in your life

Your BDBN isn’t a ‘set and forget’ document. Major life events such as marriage, separation, divorce, or the birth of children can all affect whether your BDBN is appropriate. Outdated nominations are a common cause of disputes.

Mismatch with your wider estate plan

Your superannuation nomination should align with your broader estate plan. A common mistake is not coordinating the BDBN with what your Will says, which can lead to an imbalance in your estate plan or cause family disputes. 

Letting your nomination lapse

Many industry and retail funds require BDBNs to be renewed every three years; a requirement set down by law in the relevant superannuation legislation. If you forget, the nomination may expire and your super will be distributed at the discretion of your fund’s trustee. This is a process that can take months but with a valid BDBN, you avoid this delay entirely.

Non-lapsing nominations for self-managed funds

If you have a self-managed superannuation fund (SMSF), the rules around BDBNs are slightly different.  One of the most critical differences is the ability for members of SMSFs to execute a BDBN that is not subject to the three-year renewal requirement.   Instead, SMSF members may be able to execute BDBNs that are ‘non-lapsing’ – i.e., they remain in place until the member chooses to change or revoke the nomination. 

Whether an SMSF member can put non-lapsing nominations in place will depend entirely on the contents of the SMSF trust deed – a position that was confirmed by the High Court in the 2022 decision in Hill v Zuda.

What the High Court confirmed in this critical decision was that the superannuation legislation that governs BDBNs does not automatically apply to SMSFs, unless the trust deed states it does. Given this is a common feature of SMSF trust deeds drafted before 2022, it’s absolutely critical that members who assume they have a non-lapsing nomination in place have the relevant provisions of their SMSF trust deed reviewed and, if necessary, updated.  

Failure to do so means running the risk of having the BDBN lapse, regardless of whether the nominations you have in place purport to be non-lapsing.   It all depends on the provisions of the trust deed.

Why is this important? 

Without a valid BDBN, the trustee of your fund has the discretion to investigate any potential claimants and decide to distribute your superannuation benefits to any claimant or pay it to your estate. In practice, this could mean benefits going to a former spouse, or being tied up in disputes among family members.

A properly drafted and maintained BDBN ensures your wishes are followed, avoids conflict, and helps your estate plan work as intended.

Actions you can take to protect your wishes

• At least every three years, you should review your BDBN (along with your other estate planning documents), especially if you are not a member of a self-managed fund or your personal circumstances change.
• Ensure the nominated recipients of your superannuation are valid and aligned with your Will and broader estate planning strategy.
• If you have an SMSF with a trust deed that is pre-2022, arrange or request a review of the trust deed to see if your BDBNs are still valid or whether they have lapsed because the trust deed has not been updated.

How Partners Legal Solutions can help you

Understanding these documents is a specialised area of law and an important part of estate planning. At Partners Legal Solutions, we can help review and update your estate planning documents - including Wills, powers of attorney, and superannuation nominations - to ensure they work together seamlessly. 

If you need assistance with your estate planning, please contact Ameer Singh at asingh@pwg.com.au or call the Partners Legal Solutions team today on (03) 8517 0150.

 

This information is general in nature and is provided by Partners Wealth Group. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information.