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  • Gabriella Ferraro

Part I: Estate Planning - Superannuation and Binding Death Benefit Nominations

Written by Gabriella Ferraro

Most industry and retail superannuation funds and almost all Self-Managed Super Funds (SMSFs) allow members to make binding death benefit nomination (BDBN).

What is a BDBN?

A legally binding written direction from a member to the superannuation trustee setting out how they wish for some or all of their superannuation death benefits to be distributed. The benefit of this is that it allows a superannuation death benefit to be distributed in accordance with the member’s wishes. A BDBN is typically only valid for a period of three (3) years and will lapse after this time if the nomination is not renewed.

Who can receive a superannuation death benefit?

Your legal personal representative: defined in superannuation law as ‘the executor of the will or administrator of the estate of a deceased person, the trustee of the estate of a person under a legal disability or a person who holds an enduring power of attorney granted by a person’.

Dependents: defined as ‘the spouse of the person, any child of the person and any person with whom the person has an interdependency relationship’.

A child of a deceased person under superannuation law includes the deceased’s biological child, adopted child, a step child, an ex-nuptial child and a child of the person within the meaning of the Family Law Act 1975.

What is an interdependency relationship?

An interdependency relationship is tested by two alternative means – the basic test and the disability test.

The basic test dictates that two people are in an interdependency relationship if they have a close personal relationship, live together, one or each of them provides the other with financial support and one or each of them provides the other with domestic support and personal care. The legislation also dictates numerous other factors in determining whether two persons have an interdependency relationship, such as the duration and nature of the relationship.

The disability test provides that two people are in an interdependency relationship if they have a close personal relationship and either or both suffer from a disability that means that they cannot meet one or more of the other requirements of the test, such as cohabitation, financial support or domestic support and personal care.

Taxation of superannuation death benefits

Tax laws surrounding superannuation are complex and you should always seek professional advice from an accountant or superannuation tax specialist prior to making a BDBN. You should not assume that the definitions under superannuation and tax law are the same. For example, a nomination to a child of a member over 18 years old will have significant tax ramifications for the beneficiary, despite the fact that they are considered a dependent under superannuation law.

Before making a BDBN, it is important that you seek advice about the tax implications of your nominated person(s) to understand how the benefit they received will be taxed.

The information contained in this article is general in nature and does not take into account your personal situation. This information should not be relied upon in place of appropriate professional advice. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from a solicitor.

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