While Death Benefit Nominations (DBN) and Wills both go into action when the member dies, they are very different in their scope and purpose.
A DBN is limited in scope to the member’s superannuation balance upon their death and provides instructions or wishes for how they would like their superannuation balance to be distributed to their beneficiaries.
DBN’s can be binding or non-binding on the trustee. Typically, binding DBN’s lapse after three years unless the member has renewed the nomination, though SMSFs may allow a member to make a non-lapsing binding nomination if allowable under the fund’s trust deed. The member is able to nominate one or more dependants and / or their legal personal representative (executor of the deceased estate) for distribution according to their Will. Dependants for these purposes include the member’s spouse or child (of any age) or someone with whom the member has an interdependency relationship. If the member wishes to provide the benefits to an individual who is not a SIS dependant, the only way they can receive a member’s death benefits is via the member’s deceased estate.
Why would a member consider making a binding DBN? The most obvious benefit to making a binding death benefit nomination is certainty as the trustee is bound to distribute the member’s balance in accordance with the member’s nomination. However, this can also be a disadvantage if the binding DBN has not been updated to reflect changes in the member’s relationship with the nominated beneficiary for the same reason.
Another benefit would revolve around estate planning and the different tax treatment available for dependants under tax law. Dependants for SIS purposes and tax law purposes are slightly different in relation to the children, with the latter limiting the member’s children as dependants to being under 18 years old. For beneficiaries who are dependants for tax law purposes, they have the option of taking the death benefits as a lump sum payment tax free or as a death benefit pension. The latter option may be preferable for a spouse who wishes to keep the money in the concessional tax environment of the superannuation fund, presuming that they have available cap space in their transfer balance account.
If the member dies without making a valid DBN, the trustee of the fund will decide who receives the member’s super in the event of their death based upon their relationships and eligible superannuation dependants at the time of death.
A Will, on the other hand, is a much more encompassing legal document that outlines the deceased’s wishes when they die in relation to all assets they hold personally, excluding superannuation. Other common aspects of Wills include:
- Who they choose to be their executor upon death.
- Any religious or cultural arrangements for their funeral.
- Who they want to receive specific personal or heirloom items.
- Who they want as a legal guardian for any children under 18 years old.
Wills should be prepared by experts who are experienced in all aspects of estate planning.
In summary, DBN’s, in particular those that are binding on the trustee, and Wills are complementary actions that members of super funds should consider making in accordance with the totality of their circumstances and in consultation with professional advice.
If you require assistance with death benefit nominations or other estate planning matters, please contact Waterford Financial Services on 02 4961 5095.
This article contains information that is general in nature. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information.