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Binding Death Benefit Nominations

When someone passes away before they reach retirement age, they often have life insurance and money held in a superannuation fund. Unlike other classes of asset, these funds are not typically included in a deceased estate. Instead, they are dispersed according to either the judgment of the fund’s trustee, or in accordance with a binding death benefit nomination (BDBN). This article outlines the process of making a BDBN, and to what extent this written direction is actually binding on the assignation of death benefits.

Death Benefits

A fund member does not own their account in a super fund: rather, the trustee of the super fund holds the assets in a trust. As such, the trustee is legally entrusted to decide who should receive death benefits after the death of the policy-holder or fund member.

In practice, death benefits are dispensed according to fund policy, statutory regulations or the wishes of the fund member, depending on whether the fund member makes any directions as to who should benefit in the event of their death. A trustee can choose one or more parties to receive the death benefits, or hand over the funds to an executor or administrator of the deceased estate for distribution according to the deceased’s will. If a benefit is paid into an estate where the deceased left no will, the funds will be distributed according to the relevant intestate succession legislation. Alternatively, instead of the trustee making a decision in isolation, they can do so with reference to the deceased’s wishes. Some superannuation funds have a standard practice where a fund member nominates a beneficiary in the event of their death.

Non-Binding Nomination

Commonly, a super fund death benefit nomination is a non-binding direction intended to inform the trustee, but not restrict them from making a judgment based on other variables. The trustee will weigh the deceased’s wishes against the entitlement of each family member and with regard to the circumstances of the beneficiaries. The trustee can take as long as they need to investigate and make a decision as to who should benefit.

Binding Death Benefit Nomination

A death benefit can also be distributed according to a binding death benefit nomination. A BDBN stays current for three years after the date it is signed. Unless it is renewed, a BDBN will lapse and the decision-making power reverts back to the trustee. Some companies allow for a non-lapsing BDBN, which will endure until replaced or cancelled.

Validity Of A binding death benefit nomination

A death benefit nomination is only legally binding when it is in writing and signed, dated and witnessed appropriately. Witnesses must be over the age of eighteen and be an impartial party who is not the designated death benefit nominee. The binding death benefit nomination is also only valid once the trustee receives the documentation. A BDBN compels a life insurance company or super fund to pay a death benefit to an identified individual or several parties.

There is another significant test of a binding death benefit nomination’s validity. Superannuation law states that only a dependent of the deceased is eligible to inherit their death benefits. As a general rule, dependents include a de facto partner or spouse of the deceased, a child or anyone in an interdependent relationship with the deceased. Interdependence is defined as two individuals living together in a close personal relationship, or where one or both partners provide personal care or domestic or financial support.

As the term suggests, this type of nomination is legally binding and in theory, the trustee has no choice but to follow the wishes of the deceased in a timely manner. This can be a reassuring option for someone who wants to ensure the financial security of their nominee without waiting for probate and without the danger that the provision might be legally contested.

Notional Estate Claims

There is one caveat to the finality and security of a binding death benefit nomination. In New South Wales, there are statutory provisions that allow deceased estates to reclaim death benefits assigned according to a BDBN. The Succession Act 2006 recognises both a deceased’s actual estate and when necessary, the deceased’s notional estate. Essentially this means that if there are insufficient assets in an estate to provide for a successful Family Provision Claim, the court can reclaim notional estate assets for distribution to existing beneficiaries and successful claimants.

For example, in the 2012 decision of Kelly v Deluchi, a testator left very little in his actual estate to pay for appropriate legacies to his children. However, he had considerable funds held in a self-managed super fund. The testator’s children made a Family Provision Claim in the hope of reclaiming the notional estate. The court held that the funds could be declared a notional estate asset and used to pay legacies to the deceased’s children.

Please telephone our Contested Wills Team on 1300 038 223 or contact the offices of Armstrong Legal to discuss your legal needs. Our experienced solicitors can advise you on the implications of making a binding death benefit nomination, or any other aspect of death benefits, notional estate claims or succession law.

Dr Nicola Bowes

This article was written by Dr Nicola Bowes

Dr Nicola Bowes holds a Bachelor of Arts with first class honours from the University of Tasmania, a Bachelor of Laws with first class honours from the Queensland University of Technology, and a PhD from The University of Queensland. After a decade working in higher education, Nicola joined Armstrong Legal in 2020.

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