Avoid the Traps of Binding Death Benefit Nominations

Keep in mind the following information is General Advice and is obviously not personalised for your unique needs, objectives or financial situation. Please get in touch with your advisor before taking any action on the below points so they can advise on the appropriateness of this for you.


Self-managed Superannuation Funds (SMSFs) can be an Estate Planning minefield at the best of times. One particular area of concern is in the invalid or ill-considered preparation of binding death benefit nominations (BDBNs). Incorrectly prepared BDBNs can result in professional negligence claims for accountants and financial advisors, who may find themselves in hot water without the cover of professional indemnity insurance because they have provided ‘legal advice’ in preparing the BDBN.

Far too often we see BDBNs prepared on behalf of our clients that:

1. Nominate an invalid beneficiary

Under the Superannuation Industry (Supervision) regulations 1994 (SIS Regulations) superannuation death benefits must be paid to a ‘dependant’ of the member as defined in the (Supervision) Act 1993 (SIS Act) (that is, a spouse or partner of the member, child of the member, or anyone with whom the member has an inter-dependency relationship) or the legal personal representative of the deceased. A nomination to anyone else will be invalid.

2. Do not comply with the requirements of the SMSF deed

BDBNs are not necessarily ‘one size fits all’. They must comply with the terms of the SMSF deed. Often the deed will include specific requirements for preparation of the deed and if these requirements are not met, the nomination will be invalid.  A ‘pro-forma’ BDBN included in an SMSF deed package is often defective and does not meet the requirements of the SMSF Deed.

3. Are worded incorrectly

The courts have taken a strict approach to the wording of a binding death benefit nomination. In the case of Munro & Anor v Munro & Anor [2015] QSC 61 the Queensland Supreme Court found that a BDBN which nominated “Trustee of Deceased Estate” did not comply with Superannuation Law and the SMSF deed, despite the words ‘trustee’ and ‘executor’ being almost interchangeable colloquially. Accordingly the trustee of the SMSF (Mr Munro’s second wife) was able to use her discretion as trustee to pay the death benefit to herself, instead of to the Legal Personal Representative of his Estate whereby the death benefit would have been distributed to Mr Munro’s two daughters of his first marriage.

4. Do not take into account the client’s Estate Plan

BDBNs are best prepared in conjunction with a client’s Estate Plan, including preparation of an up-to-date Will and Enduring Powers of Attorney that deal with the ongoing management and control of the SMSF. A properly executed Estate Plan will consider how the BDBN should be drafted to best achieve the client’s intentions, minimise risk and minimise tax. For example, where a client wants superannuation proceeds paid to their children, and a possible testators family maintenance or family provision claim exists from a new partner or spouse, it may be prudent to nominate the client’s children to receive the superannuation proceeds rather than the Estate. If testamentary discretionary trusts are established in the Will, it may be best to nominate the Legal Personal Representative to receive the death benefit.

A well drafted BDBN should include alternative distribution provisions in the event the first beneficiary pre-deceases the member. We are aware of an accountant who was recently sued for professional negligence in preparing a BDBN that did not include alternative distribution provisions if the client’s spouse predeceased him. This resulted in an unfavourable distribution of the death benefits that excluded the client’s son of his second relationship.

A properly drafted estate plan will also feature a Will with adjustment provisions to equalise distribution between beneficiaries, and consider who will assume control as trustee of the SMSF to avoid risks.

5. Are signed or witnessed incorrectly

The Interim Report of the Royal Commission into Misconduct in the Banking, Superannuation & Financial Services Industry handed down on 28 September 2018 revealed a widespread practice at one major bank of incorrectly witnessing binding death benefit nomination forms, effectively jeopardising the nominations of over 2500 customers. It is crucial that binding death benefit nominations are signed, witnessed and dated in accordance with legal requirements and the terms of the SMSF deed. A failure to correctly sign and witness a nomination could result in the binding death benefit nomination being held to be invalid, allowing the trustee discretion as to how the proceeds of the SMSF are paid.

Whilst on the face of them, BDBNs may seem simple, they should only be prepared with full and proper consideration of a client’s Estate Plan and should not be prepared by the accountant or financial advisor. For more information on how Morrows’ legal team can help with your client’s Estate Planning requirements please contact Rabia Javed-May at rjaved-may@morrows.com.au or Laura Harding at lharding@morrows.com.au or call (03) 9690 5700.

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