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Meg on SMSFs: Is a binding death benefit nomination worth it?

In a monthly column to assist trustees, specialist Meg Heffron explores major issues on managing your SMSF.

I’m visiting an estate planning lawyer this week to finally update my will.

I hate to admit it but this is the first time I’ve had it reviewed in 20 years. Back when my current will was drafted, my youngest child was a newborn, I was married and my husband and I had pretty much no assets other than our home and shares in our fledgling business.

As I race through my 50s, life looks different. So it’s definitely time.

I know one of the issues that will come up is whether or not I should have a binding death benefit nomination for my super so that’s something I’ve been thinking about in advance.

Will it make a difference?

Let me start by saying that if I belonged to an APRA fund, I would absolutely have a binding death benefit nomination. The idea of complete strangers needing to pour over my affairs to work out where my super should go (and delay delay delay) sends shivers down my spine.

But all my super is in my SMSF. Does that make a difference?

I think it makes all the difference in the world.

For a start, I have two levels at which I can control what happens with my super after my death – both a binding death benefit nomination and who controls my SMSF after I die.

Let’s think about control first.

I currently own all the shares in the trustee company for my SMSF and I’m the sole director. That means if I die, control of those shares initially passes to whoever I nominate as my executor(s). They would be able to use their power as shareholders to appoint themselves as directors of the corporate trustee. And that would be useful because the SMSF would be pretty rudderless until someone else was appointed as a director. Until then, my fund couldn’t even lodge returns or make changes to its investments. On this front, it’s worth noting that while the SMSF rules allow executors to be trustees of SMSFs on the death of a member, it usually doesn’t happen automatically. They still need to formally take on the role (and in my case, become directors of the trustee company) before they can do anything.

(As an aside, my will could leave control of those shares to someone else. That might make sense if, for example, I decided that my two sons were too young to take on the role of executor and instead asked someone else to do that job for me. I could still leave the shares themselves to the boys. While that would give them the ability to hire and fire directors eventually, that wouldn’t happen until the executor(s) actually distributed that particular estate asset to them. By then, my death benefit might have been dealt with and the shares effectively useless.)

The key, though, is that this ability to choose a specific person or people to take charge of my SMSF once I die, means I can make sure the 'right' person is in the driver’s seat when it comes to making decisions about my super – not a faceless trustee of a large public super fund.

If I’ve got that covered, would I also put a binding death benefit nomination in place?

Remember a binding death benefit nomination is a document that binds the trustee and requires them to do specific things with my death benefit. In an SMSF, this document can last indefinitely if the trust deed allows for that (it wouldn’t need to automatically expire every three years like it would in a public fund). It can also be far more precise than binding nominations for public funds. It could, for example, give different instructions for different parts of my super (my pension could be treated differently to my accumulation account), set instructions that depend on other events – for example “if my youngest son is still considered a dependant, give it all to him”, stipulate that particular assets are to go to particular beneficiaries and more.

Flexibility is an issue

The thing that makes me nervous about binding death benefit nominations is that they take away some of the flexibility for the people left in charge – who are often also the beneficiaries.

My late husband didn’t have a binding death benefit nomination and that was deliberate. It left me (his executor and primary beneficiary under his will) with a lot of flexibility to arrange things the way I wanted based on whatever my own super, his super and the tax rules looked like at the time.

If he’d had a binding nomination directing all his super to his estate, for example, I couldn’t have kept some of it in our SMSF to start a pension.

If he’d had one that nominated me as his sole beneficiary, I couldn’t have had any paid to his estate.

And in either case, I couldn’t have entertained the idea of paying some of his super as pensions to our (then dependent) sons. (OK – let’s be honest, this was only a very brief consideration. I’d like to think I’m a generous parent but I’m not crazy.)

Of course, a binding death benefit nomination that considered every possibility could have accommodated all of the above. But that would take a lot more careful consideration than just filling in a standard form available from my accountant or adviser.

It wasn’t relevant in our case but I’ve seen plenty of clients with binding nominations that effectively require a deceased’s pension to automatically continue to the surviving spouse. That might be great for some people but it does mean that the surviving spouse misses out on some valuable choices.

For a start, the deceased’s pension balance immediately becomes part of the surviving spouse’s 'total super balance'.

For some couples that will make all the difference when it comes to whether or not the surviving spouse can make further super contributions one last time.  For example, someone with $1 million in super themselves who inherited their spouse’s $1 million pension in May 2024 would have a total super balance of $2 million at 30 June 2024. That means no more non-concessional contributions in 2024/25. In contrast, the ability to delay the start of any new pensions until 1 July 2024 would mean non-concessional contributions could continue in 2024/25.

The proposed new tax on people with more than $3 million in super will, if introduced as planned, also depend heavily on the survivor’s total super balance at 30 June. For example, someone with $4 million in super who inherits a spouse’s $2 million pension automatically in May 2026 would have $6 million in super at 30 June 2026. This could result in much more tax being paid than necessary for the 2025/26 financial year.

So what am I going to do?

I think the situation is slightly different once you’ve reached the point where the strategic planning options have diminished. In my case, for example, chances are my two sons won’t be eligible to receive my super as a pension (this stops when they turn 25 even if they are still – heaven forbid – dependent on me at the time). That means my super will definitely have to come out of the SMSF on my death. In that case, the downsides of a binding death benefit nomination aren’t so significant. I could comfortably have a binding nomination that required the balance to go to my estate knowing that it’s the most tax effective option anyway (it means no Medicare Levy).

I guess there’s always the chance that I remarry. Doing so will mean my new will is invalid (unless I update it again in contemplation of the marriage). But the same wouldn’t apply for a binding death benefit nomination, it would remain in place. That might mean the supposedly 'safe' option actually becomes the very worst thing I could do – my super would no longer be guaranteed to end up with my children.

Perhaps the most important thing I need to do at this stage is make sure I don’t leave it another 20 years to update my will if anything significant happens in the meantime.


Meg Heffron is the Managing Director of Heffron SMSF Solutions, a sponsor of Firstlinks. This is general information only and it does not constitute any recommendation or advice. It does not consider any personal circumstances and is based on an understanding of relevant rules and legislation at the time of writing.

For more articles and papers from Heffron, please click here.


Jon Kalkman
November 19, 2023

Consider the situation where there is no BDBN. In that case, the distribution of the death benefit is the left to the discretion of the trustee of the super fund.

In an industry super fund, there is always a trustee in place, but they seldom consider your personal circumstances. That is why it is imperative to have a legally binding BDBN - to ensure your wishes are followed.

In an SMSF, the critical question is: “Who is the trustee of your fund on your death?” If the new trustee is not clearly identified, there may be no one with the authority to administer the fund. In fact, it may need a court order to appoint a new trustee - and the court may appoint the Public Trustee to administer your fund.

If the new trustee is someone you trust to follow your wishes, a BDBN may indeed be redundant, but without a clear line of succession to appoint a new trustee, that question becomes moot.

To manage this uncertainty, my wife and I have amended our super fund trust deed so that on death, the executor of our estate is automatically appointed as trustee of our fund. The fund’s trust deed governs the operation of the fund and, by definition, this is a person we trust.

November 17, 2023

Anybody considering whether or not they need a BDBN would be well advised not to take legal advice from an accountant.

November 16, 2023

I think there are at most 10% of people for whom this article is appropriate, and for everyone else there is absolutely no question that they should have a binding nomination on their super fund. Obviously there is up to 10% of the population for whom it may make sense not to have a nomination as outlined by Meg, but for everyone else this should be an absolute no-brainer. In an ideal world people would also make sure that the binding nomination for their super fund works in concert with the advice given by their estate planning lawyer on their will, but alas in my experience for whatever reason very few estate planning lawyers seem to even consider what the binding nomination is on the client's largest or second largest asset.

November 18, 2023

sadly many lawyers dont know much about estate planning.

My father had a testamentary trust incorporated into his will, which was prepared by a specialist in the field.

His second wife went to the local solicitor (who claimed to know all about wills), and one of their comments was that dad's will "was the most ridiculous thing they had ever seen"

November 16, 2023

We have no binding death nominations. At a certain age I intend to wind up the SMSF, liquidate all holdings, make distributions to myself and others, then live happily ever after. They have a useful purpose but life was simpler before SMSFs.

Graham W
November 19, 2023

Agree, we are now in our mud seventies and looking to transfer our SMSF to a family trust. No audit and minimum drawdowns and great estate planning. Looking at an annuity or two for regular income and no ongoing management issues for those funds.

November 20, 2023

While winding up your SMSF is a plan, what do you do if due to sudden and unexpected death and have no binding death nominations in place?

November 21, 2023

Jason - A BDN is a written direction from a member to their superannuation trustee setting out how they wish some or all of their superannuation death benefits to be distributed. Like most 2 member SMSFs we are husband and wife trustees. We trust each other. I die, she gets my share. She dies, I get her share. Who else is going to get it? A BDN is not compulsory and in it's absence "...the deceased’s superannuation trustee(s)
will use their discretion to decide which dependant(s) the death benefit is paid to, or make a
payment to the deceased’s legal representative." So if I die first the absence of a BDN does not mean she is not going to pay herself. A BND for most SMSFs is totally unnecessary because the SMSF trustee and member is one and the same, a fact apparently lost on the regulaltors who try to impose generic Super fund rules and conditions on SMSFs. Do I need a BDN to tell my spouse to pay my death benefits to herself? Ridiculous.

November 22, 2023

AlanB - what if both you and your wife are on the same plane or in a car and have an accident of which both of you die of unexpected death? Both trustees in the SMSF are dead, what do you do then with money in SMSF? I didn't make my question clear enough initially.

November 23, 2023

Jason - when I was very young my mother once asked my father what would happen to AlanB if we both die together. Dad's response, after considering the remote chance of that happening was: 'Don't worry, the government will look after him.'
Fortunately, the prospect of the Government having to raise me, and all the other worst case 'what if' scenarios, limited only our imagination, did not eventuate.


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