Superannuation in Australia is governed by the Superannuation Industry (Supervision)
Act 1993 (Cth) (SIS Act) and Income Tax Assessment Act 1997 (Cth) (ITA Act).
Superannuation is a tax-effective way to save for your future. The SIS Act provides for
the formation of a Self-Managed Superannuation Fund (SMSF). These funds are subject
to strict compliance requirements however, they also allow members flexibility and
control over the choice and management of their investments.
The potential benefits of having an SMSF cannot be achieved without sound planning
and administration. This includes having in place a valid Binding Death Benefit
Nomination (BDBN). This is often overlooked by fund members resulting in unintended
and undesired consequences after the member’s death.
What is a Binding Death Benefit Nomination?
A BDBN is a direction to the trustee of your superannuation fund to pay your death
benefits to an eligible beneficiary or beneficiaries, or to your estate. Essentially, the
BDBN overrides the decision of the trustee so that benefits are paid in accordance with
your wishes rather than at the trustee’s discretion.
Superannuation does not automatically form part of your estate so without a BDBN, the
beneficiaries would otherwise be decided by the trustee under the terms of the fund and
Fortunately, most funds allow you to nominate your intended beneficiaries provided the
nomination complies with the legislation and provisions of the trust deed.
The trust deed for a SMSF can include provisions allowing members to make BDBNs.
Many trust deeds already have these provisions in place however if not, your lawyer can
assist to formally amend the trust deed to allow for a BDBN.
A BDBN can also be tailored to take account of various contingencies. They can have
cascading provisions which provide for an alternate beneficiary if one or more
beneficiary predeceases the fund member, identify a specific asset for a beneficiary and,
where permitted, nominate how benefits are to be paid such as by lump sum or pension.
Who can I nominate?
Death benefits can only be paid to a dependant of the fund member or to the member’s
legal personal representative (the executor or administrator of the estate).
A ‘dependant’ includes a spouse (including a de facto partner of same or opposite sex),
a person with whom the fund member had an interdependency relationship, a child of
any age or a person who is financially dependent on the member. A child includes a
biological child, adopted child, step child and ex-nuptial child.
A ‘dependant’ under the ITA Act (unlike the SIS Act) does not include financially
independent adult children. This means that although adult children can be paid from the
fund, they may be taxed higher than other beneficiaries. The choice of beneficiary is
therefore an important consideration when making a BDBN. The overall estate must be
considered – sound financial and legal advice can make a big difference in the tax
consequences to the person inheriting.
What is a valid BDBN?
The SIS Act and Regulations provide rules for making BDBNs which generally include
• members are given sufficient information to understand their rights to require the
trustee to provide the benefit;
• trustees must pay the benefit in accordance with the nomination provided those
nominated are a member’s dependant/s or legal personal representative;
• the rules of the fund must allow members to make a nomination;
• the nomination must clearly indicate the portion of benefit payable to each
• the nomination must be in writing, signed and dated by the member and
witnessed by two adults (who are not beneficiaries) who must declare that the
nomination was signed in their presence;
• a member giving notice may amend, revoke or affirm the notice after it is made;
• the nomination lapses after three years.
It is generally accepted that not all of these rules apply to SMSFs, although there has
been uncertainty surrounding this issue for some time. Accordingly, when preparing a
BDBN for a SMSF it is necessary to look closely at the trust deed to ensure that a BDBN
is permitted, that it is prepared in conformity with the deed, and does not fall short of
those parts of the SIS Act and Regulations that should apply. Your lawyer can review
the trust deed to ensure that the appropriate provisions are included and that the
proposed BDBN will be effective.
Similarly, although the SIS Act provides that a BDBN will lapse after three years, it is
considered that a BDBN made under a SMSF can be non-lapsing and last indefinitely.
Despite this, it is highly recommended that all BDBNs be reviewed at least annually and
in the event of a significant change in personal or financial circumstances (of both the
member and anticipated beneficiaries).
Case studies – the importance of estate planning and reviewing a BDBN
It cannot be over-emphasised how important it is to regularly review your estate plan –
this includes your Will your SMSF and BDBN. It’s hard to imagine the difference that one
document, often only one page in length, could make to the distribution of your estate.
A 2005 case shows the consequences of leaving the distribution of your superannuation
funds to your trustee’s discretion. In Katz v Grossman  NSWSC 934 the
deceased’s Will provided for equal distribution of the estate to his son and daughter.
Considerable assets were held in an SMSF of which the daughter was trustee.
The daughter paid the entire SMSF balance (approximately $1 million) to herself rather
than dividing it with her brother. Unfair you say? Probably, however despite the
provisions in the Will, the Court determined that the daughter (a trustee and dependant
under the SMSF) was legally permitted to pay herself.
More recently in Ioppolo and Hesford v Conti WASC 389  unintended
consequences were the result of not considering an overall estate plan and the interplay
between a Will and superannuation fund.
In her Will, the late Mrs Conti left her superannuation benefits to her children. She and
her husband were trustees of an SMSF with considerable assets. After Mrs Conti died
the trustee was replaced with a corporate trustee (a company controlled by the husband)
which paid the deceased’s benefits to the husband.
Despite specific instructions in Mrs Conti’s Will that her husband was not to benefit from
her interest in the SMSF, the Court found against the children’s claim to the funds.
Unless specific directions are made through a BDBN for the payment of your death
benefits, the beneficiary of your superannuation fund could be determined by a trustee
and a contrary direction in your Will may be ousted.
Regular review of your SMSF with your financial and legal advisors can assist in
achieving maximum benefits from your fund. Just like having a routine health check-up,
your SMSF should be monitored, analysed, and, if necessary, adjusted to achieve
optimum performance. This includes having in place a BDBN that accurately reflects
your testamentary wishes and reviewing it regularly to ensure it takes account of your
changing financial and personal circumstances.
If you or someone you know wants more information or needs help or advice, please
contact us on (03) 9600 0162 or email firstname.lastname@example.org.