Binding Death Benefit Nominations (NSW)
A deceased estate is made up of the assets and liabilities that were held by the deceased when they passed away but does not typically include the value of superannuation and life insurance accounts. Instead, the trustee of the superannuation or insurance fund decides who will receive benefits according to the fund’s governing rules, superannuation law, and any binding instructions of the deceased. A binding death benefit nomination directs a superannuation fund or life insurance company to pay a death benefit to a specific person or people. As the name suggests, this nomination is legally binding. However, in New South Wales statutory provisions may override this written direction. This article outlines the purpose of a binding death benefit nomination (BDBN) and the method of reclaiming the asset in NSW through a notional estate claim.
When a life insurance policyholder or member of a superannuation fund dies, the benefit is dealt with in one of several ways, depending partly on the deceased’s direction. The super fund member does not personally own the account, it is held by the trustee of the super fund. Legally, the trustee is tasked with making the decision about who receives the death benefit. They can decide to pay the benefit to the deceased estate or choose an individual to directly receive the death benefit. However, many super funds encourage a policy-holder to make out instructions to legally nominate a beneficiary.
The most common type of death benefit nomination with super funds is a non-binding nomination. With a non-binding nomination, the super fund trustee will consider the wishes of the super fund member, but they have final say over who receives the benefit and in what proportion. In this circumstance, a trustee will consider the deceased’s familial and personal relationships and the circumstances of prospective beneficiaries. For example, if the deceased made a non-binding nomination to benefit someone who is recently bankrupt, the trustee may choose not to follow the wishes of the deceased as the benefit could be claimed by the bankruptcy trustee. A fund trustee can take as long as necessary to make this decision.
The trustee can also choose to pay a death benefit to the executor or administrator of the deceased estate. It will then be the personal representative’s job to distribute the asset to the appropriate beneficiaries. If a superannuation or insurance benefit is paid into an intestate deceased estate (where there is no will), the administrator will distribute the assets according to the rules of intestate succession legislation in that state or territory.
Binding Death Benefit Nomination
The other way that a death benefit can be dealt with is through a Binding Death Benefit Nomination. When the nomination is binding the trustee usually has no discretion to decide who should receive the death benefit.
Someone can nominate an individual to be the recipient of a BDBN. This provides certainty and peace of mind for the nominator that the person they wish to name as nominee will benefit. A trustee typically pays out a death benefit according to a BDBN in a timely manner, as there is no need for investigation or elaborate decision-making. A super fund member can also make a BDBN to be paid to their deceased estate or personal representative, and then the death benefit will be governed according to the terms of the will.
In order for a death benefit nomination to be legally valid, it must be in writing, signed and dated by the super fund member and witnessed appropriately. Witnesses must be aged eighteen or older and not themselves beneficiaries of the BDBN. Most super funds have a form that, when filled out correctly, accounts for the requirements for validity. The form making the BDBN must be sent to the trustee of the fund otherwise the nomination is not valid.
For a BDBN to be valid, the beneficiary must fall into one of the eligible categories. Superannuation law dictates that only a dependent can benefit, such as a spouse or de facto partner, a child, or someone who was in an interdependent relationship with the nominator. An interdependent relationship is between two people living together, or who have a close personal relationship, or one of the pair provides the other with financial or domestic support or personal care.
A BDBN expires after three years from the date of signing, at which point the decision as to who benefits reverts back to the trustee unless the nomination is renewed. Some super funds offer the option for a non-lapsing BDBN, which will remain in place until they are cancelled or replaced with a new death benefit nomination.
Impact Of A Notional Estate Claim On BDBN
New South Wales has unique succession law, in that it recognises not only the actual estate of the deceased but in some circumstances also the notional estate of the deceased. As such, a BDBN may not be ultimately binding if it is subject to a notional estate claim. The Succession Act 2006 allows that if someone makes a Family Provision Claim against the estate of the deceased, and there are insufficient assets to cover a Court-ordered provision, then the court can turn to notional estate assets. While death benefits do not constitute an asset of deceased estates, the NSW Supreme Court has the authority to designate a death benefit as falling with a notional estate, and thereby claim the asset for distribution to appropriate beneficiaries.
The impact of notional estate claims against binding death benefit nominations was demonstrated in the 2012 decision of Kelly v Deluchi. In this case, the deceased’s will left legacies to his children and to a friend, life insurance proceeds to his grandchildren and the residue estate to his wife (who was not the mother of his children). The estate was insufficient to properly account for these legacies, but the deceased was a member of a self-managed superannuation fund that his wife managed after his death. When the deceased’s wife allocated the death benefit to herself, the deceased’s children filed a family provision claim against the estate. The court found that the superannuation funds were eligible to be designated as notional estate, and ordered that part of the funds be used to increase the legacies to the children.
The Contested Wills Team at Armstrong Legal can help if you need advice about making a binding death benefit nomination, or guidance as to the impact of a notional estate claim on death benefits. Please telephone our offices on 1300 038 223 or contact us to discuss your legal needs.