When a Member dies, the Member’s benefit will be passed on to beneficiaries or the Member’s legal personal representative. This can be done in the form of a Binding Death Benefit Nomination (BDBN), also referred to as an “SMSF Will“.
When the Trust Deed is silent or ambiguous as to whom the beneficiaries are, the Member’s benefit will pass on to the estate of the Member and be allocated from there according to their Last Will or Testament. The disadvantage of this approach is that outside parties may lay claim to the estate, e.g. previous spouses, family members or even creditors. For this reason it is prudent to indicate in the SMSF Trust Deed who the beneficiaries are.
Recent Legal Cases
There are some specific items that Trustees should look out for when establishing a BDBN. Trustees must ensure that their nominations are clearly noted in the Fund’s Trust Deed or a subsequent BDBN. The main areas to consider and the key risks of SMSF estate planning are noted in the five Court cases :
Four SMSF Estate planning options
There are effectively four ways that you as a Trustee can look after your dependents or others from your SMSF on your death:
- You can pay a lump sum from your benefits in the Fund, by way of cash or assets, to a dependent or the Trustee of your legal estate
- You may pay a pension from your benefits in the Fund to a dependent. There are restrictions on paying pensions to child dependents over the age of 18 unless the child is a student under the age of 25 or a child who is disabled
- A reversion of an existing pension which results in the continuation of the pension in the name of the reversionary beneficiary, provided the person is a dependent – again subject to the child limitation above
- Any insurance proceeds from a life insurance policy held in your name as a Trustee may be used to increase the deceased Member’s benefits
Updating or establishing a BDBN
Here is the BDBN or SMSF Will. This will be valid until the Member decides to change it.Binding Death Benefit Nomination
If you have set up a Fund with us, our Trust Deed includes the BDBN for each Member. This nomination will be in place until the Member decides to change it. For more information on Trust Deed, please click on the button below: