Does Your SMSF Have a Binding Death Benefit Nomination in Place?

We manage a lot of self-managed super funds at Sharp Accounting, and one thing we see more often than you might expect is members without a Binding Death Benefit Nomination in place.

For an SMSF, a BDBN can be relatively straightforward to administer because the fund’s trust deed can set out how the nomination operates and how the member’s death benefit is to be dealt with.

The bigger issue is that many members either do not have one, do not know whether they have one, or assume their Will determines what happens to their super.

It doesn’t necessarily work that way.

Superannuation is held within the super fund and does not automatically form part of your estate. If there is no valid binding nomination in place, the trustees may have discretion over how the death benefit is paid, subject to the fund rules and superannuation law.

For someone who has built a substantial super balance over many years, it’s worth getting clear on this.

What does a Binding Death Benefit Nomination do?

A Binding Death Benefit Nomination, commonly known as a BDBN, directs the trustee of your super fund about who should receive your superannuation death benefit when you die.

If the nomination is valid and complies with the fund’s governing rules, it can remove much of the uncertainty around how the benefit is paid.

Without a valid binding nomination, the trustee may need to decide how the benefit is distributed. That can become particularly important where there are complex family circumstances, multiple potential beneficiaries or different expectations about what the member wanted to happen.

Superannuation law also limits who can receive a death benefit directly. Depending on your circumstances, this may include a spouse, child, financial dependant, someone in an interdependency relationship or your legal personal representative.

This is why your SMSF, BDBN, Will and broader estate planning need to work together.

Why can BDBNs be easier to administer in an SMSF?

One practical advantage of an SMSF is that the fund operates under its own trust deed, rather than the standard rules and processes of a large superannuation fund.

The trust deed can set out how death benefit nominations are made and administered, including whether a BDBN can remain in place rather than expiring after a set period.

That can give SMSF members more control and make the administration clearer, particularly where the fund documentation and estate planning have been considered together.

But having an SMSF doesn’t automatically mean this has been sorted.

We regularly see SMSFs with no BDBN at all, or where members are unsure what documentation was put in place years ago.

We also see situations where circumstances have changed, but the nomination has not been revisited. A change in marriage, separation, family relationships, business ownership or retirement planning may all affect whether the existing arrangements still make sense.

The awkward part for accountants

This is also an area where the rules around financial advice create a gap that many SMSF members may not realise exists.

Before 1 July 2016, accountants had an exemption that allowed them to provide certain advice in relation to SMSFs without holding an Australian Financial Services licence. That exemption was removed as part of the Future of Financial Advice reforms.

Accountants can still provide SMSF accounting, tax, compliance and administration services, but the rules restrict when they can provide personal financial product advice without the appropriate licence or authorisation.

In practical terms, we may be looking after your SMSF and can see that there’s no BDBN on file, but that doesn’t necessarily mean we can recommend what you should put in place or who you should nominate.

Depending on the advice required, that may need to come from an appropriately licensed financial adviser and/or an estate planning lawyer.

This is an important distinction as otherwise it can be easy for everyone to assume somebody else has dealt with it.

Do you know what is currently in place?

If you have an SMSF, particularly one that has been running for a number of years, it’s worth knowing whether you currently have a valid BDBN and whether it still reflects what you want to happen to your super.

Do not assume your Will covers it.

At Sharp Accounting, we can check the documentation we hold for your SMSF and identify whether a BDBN is on file or whether the issue needs further attention. If financial or legal advice is required, we can work with the appropriate adviser to ensure the different parts of your SMSF and estate planning line up properly.

Talk to Our SMSF Specialist About Your BDBN

If you have an SMSF and are not sure whether you have a current and valid Binding Death Benefit Nomination in place, it is worth checking.

Julian Versloot is Sharp Accounting’s SMSF specialist and works with individuals and business owners across Ballarat to review their SMSF arrangements, identify gaps and help ensure the right financial or legal advice is brought in where needed.