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Superannuation now often represents a significant proportion of an individual’s assets. A number of factors have contributed to increases in superannuation including compulsory employer contributions (superannuation guarantee), taxation concessions / incentives, the removal of compulsory cashing of superannuation benefits upon retirement and default levels of insurance coverage.
However superannuation is frequently overlooked, or misunderstood, when developing estate plans, as are the estate planning implications of transferring superannuation benefits to a new fund (i.e. from a retail or industry fund to a self managed superannuation fund). This can have substantial ramifications for the intended beneficiaries of an estate and can cause unnecessary distress, conflict, taxes and costs to surviving family members.
A common misconception is that superannuation automatically forms part of the estate of a deceased member and in turn would be dealt with in accordance with a Will. This is actually not the case, with superannuation fund trustees commonly having discretion as to who receives a deceased member’s superannuation benefits in the absence of a binding direction.
A Binding Death Benefit Nomination (BDBN) is a useful tool that can provide greater certainty and protection to superannuation benefits upon the death of a member. A BDBN is a written direction from a member to the trustee of a superannuation fund requiring death benefits to be paid to their nominated dependant(s) and/or legal personal representative.
Below are a number of key questions that should be considered when formulating a BDBN:
- Do your superannuation fund’s governing rules permit BDBNs to be made?
- Has the BDBN been made in the appropriate form?
- Are the nominated beneficiaries within the BDBN permitted under superannuation law (dependants and/or legal personal representative)?
- Will the BDBN lapse or become non-binding after a particular timeframe?
- Does the BDBN align with and complement other estate planning documentation (i.e. Will, reversionary pensions)?
- What form can the death benefits be paid (lump sum vs pension)?
- What are the taxation implications to the nominated beneficiaries, which may be impacted by:
- Tax status of the nominated beneficiaries (dependant vs non-dependant)
- Tax components of superannuation death benefits (taxable vs tax-free)
- Form of the superannuation death benefits (lump sum vs pension)
- Insurance proceeds
- Has the BDBN been received and accepted by the trustee of your superannuation fund?
- Have you sourced specialist legal advice in relation to your overall estate plan (highly recommended)?
With the ever-changing nature of society today, specifically in respect of financial and personal affairs, it is essential for estate plans to be reviewed and updated on a regular basis (at least every three years). Integrating a valid BDBN as part of your estate plan will provide greater certainty that your superannuation benefits will be dealt with appropriately in accordance with your wishes and paid to your intended beneficiaries.
Make sure you receive specialist taxation advice to support your estate and superannuation plans. Get in touch with one of our experienced advisers, or arrange an appointment, by contacting BLG Business Advisers online or calling (02) 4229 2211.
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