Unless the super fund entitlements arising on your death (Death Benefits) are properly dealt with, your Will cannot direct to whom those Death Benefits will pass.
Usually the super fund deed gives the trustee a broad discretion as to how a member’s entitlements can be dealt with on that member’s death. However the trustee’s view as to who should receive your membership Death Benefits and in what proportions may not reflect what you would have wished.
Under most super fund deeds, a member can direct the trustee as to how Death Benefits are to be paid. This is done by signing a Binding Death Benefit Nomination (BDBN).
The requirements for signing a valid BNDN can vary, but broadly depend on whether the super fund is a multi-member fund (Industry Fund) or a self managed superannuation fund with 4 or fewer members (SMSF).
If the super fund deed permits BDBNs, there are statutory requirements which must be met before the document is valid. These are set out in the Superannuation Industry (Supervision) Act 1993 (SIS Act) and its regulations.
In particular, the regulations provide that the only persons who can be nominated as beneficiaries under a BDBN are:
- Dependants of the member; and
- the legal personal representative of the member (i.e. the executor of a deceased member’s estate).
A dependant includes a spouse, child or any person who has a dependency relationship with the member:
The regulations also provide that:
- a BDBN must be signed by the member in the presence of 2 adults who must sign and date the form; and
- a beneficiary under the BDBN cannot be a witness.
A further important feature of the regulations is that BDBNs lapse after 3 years. It is therefore essential for members of Industry Funds to renew their BDBNs every 3 years for them to remain effective.
BDBNs for Industry Funds therefore have the advantage of being more likely to address a member’s changing personal circumstances and wishes.
However they have the disadvantage of ceasing to be of any use if 3 years pass without renewal.
There is some controversy as to whether SMSFs are subject to the same regulations regarding BDBNs as are Industry Funds.
The better view would appear to be that taken by the Commissioner of Taxation, who is the regulator of superannuation under the SIS Act.
In SMFD 2008/3 he has advised his conclusion that, for SMSFs, BDBN issues are a matter solely for the particular SMSF deed and have nothing to do with the SIS Act or regulations.
That being the case, whether a BDBN is available at all and, if so, the technical requirements for giving it, depends on the terms of the deed.
Perhaps more relevantly, the better view is that it is possible for a BDBN made by a member of a SMSF to be made for a period in excess of 3 years. Indeed, a BDBN for an SMSF can be for an indefinite period.
BDBNs for SMSFs therefore have the advantage of not having to be reviewed every 3 years to avoid becoming invalid.
However they may have the disadvantage of not keeping up with the changing personal circumstances of the members who make them.
In effect, in making a BDBN the member of a SMSF is often in the same position as he or she is when making a Will, which are often also reviewed only irregularly.
In those cases, the drafting of the BDBN has to be undertaken with greater care. In particular, the drafting should take into account contingencies, such as:
the death or bankruptcy of any named beneficiary and who will take the benefit instead (e.g. the surviving children of a beneficiary who dies)