Anyone else sick of the acronyms? No, just me?
When I talk about binding death benefit nominations (BDBN) I often hear people say ‘that doesn’t apply to me, I have an SMSF’ (a self managed superannuation fund).
If you don’t know what a BDBN is you can read more about that here. They are important, you should definitely have one and it should definitely be current.
I have an SMSF
Great, but that is harder, not easier.
Firstly, if you have an SMSF and your financial adviser hasn’t spoken to you about BDBNs then you should call them today and ask them what will happen to your funds when you die.
Secondly, if you haven’t turned your mind to this then something will happen, it will just be the default position and you may not like that. With superannuation there are real tax implications and pragmatic implications attached to who receives your superannuation, for instance some people can take it tax free or as an income stream, other beneficiaries might have to take it as a lump sum (that is the SMSF has to be wound up).
Something that I borrow and repeat from Tara Lucke (who is an Estate Planning enthusiast) is that it isn’t true that you don’t have an Estate Plan, you have an Estate Plan by default. Maybe the default position is what you want, maybe it isn’t.
Thirdly you are right, there are different rules that apply to SMSFs, the default three year BDBN rule may not apply (see more about that in the Commissioner’s decision here). There is a real debate at the moment about whether the default rules do apply, and so frankly it is prudent to update every three years. Also in both of the examples given by the Commissioner in that link the BDBN made with the superannuation company fails, and the Trustee of the company instead gets to decide who receives the benefit.
What is ironic about that is if there is no BDBN at all, then the superannuation may default to the deceased’s Will. That may be a good or bad thing (depending on whether the recipient is a dependant, the tax implications and whether the SMSF now has to be wound up) but at least it would be paid in accordance with a document prepared by the deceased.
So do I need a BDBN?
Yes and no.
That question is actually too complex for a blog.
What I will say is that if you have a retail superannuation fund and you keep your BDBN up to date the answer to that question is simple.
If you have an SMSF you should be more concerned about your death nomination, and you should make sure that it will be paid in accordance with your wishes.