Pension reversionary nominations and binding death benefit nominations (BDBNs) are the most common means by which a member will allocate the distribution of their self-managed superannuation fund (SMSF) death benefit. When choosing the right binding death nomination it is important to get it right. There are three types of BDBN’s and each vary according to each individual situation.
What is a BDBN? A BDBN is a commonly found document in an SMSF deed; it provides little opportunity for estate planning strategies other than to nominate one or more individuals to receive a benefit. The payment of death benefits from a SMSF is determined in accordance with the governing rules of the fund and not (as most people think) in accordance with the terms of your will. Superannuation benefits are dealt with outside of your will. For SMSFs, the nomination is valid until it is altered or revoked.
A basic BDBN is usually the only option available for member of the public offer funds. The basic BDBN does not cater for the situation where a beneficiary predeceased the member, nor does it enable the member to leave specific assets to a beneficiary. Therefore, being very limiting from a planning perspective. If you have complex finances or family arrangement implementing a basic BDBN is not recommended as it is very limiting and may cause problems down the track.
A standard BDBN is more advanced than the basic BDBN, enabling not only for the member to nominate one or more beneficiaries to receive their death benefits, but also catering for the situation where a beneficiary predeceases the member. Whilst a standard BDBN contains provision for multiple layers of beneficiaries, it does not provide for the allocation of specific assets to beneficiaries.
Complex BDBNs provide for a greater range of possibilities, as well as different layers of beneficiaries. A complex BDBN can provide for the provision of benefits to multiple beneficiaries, the distribution of benefits to an alternate beneficiary (if one or more beneficiaries predecease the member) and the distribution of specific assets to beneficiaries.
You may ask which one is best for you? Choosing the right BDBN depends on your personal circumstances. In some cases a basic BDBN will be adequate and some circumstances will require a standard or complex BDBN.
Estate planning in a SMSF, using a BDBN does not merely need to be the nomination of a single “layer” of beneficiaries. Multiple layers, specific terms and the gifting of specific assets can be attended to utilising a range of BDBN options available, provided the trust deed permits.
If you would like any information about binding death nominations for your SMSF please contact Grange Business Partners today!