The Risks of Not Having a Binding Death Benefit Nomination

Relevant For:

Australian business owners and SMSF trustees.

Key Points:

  • Without a Binding Death Benefit Nomination (BDBN), trustees decide death benefit distribution.
  • BDBN ensures benefits align with your wishes, avoids estate delays, and may offer tax benefits.
  • Valid BDBNs must comply with regulatory requirements.
  • Cases highlight pitfalls: control issues, defective BDBNs, and non-binding nominations.
  • Obtain professional advice for SMSF succession planning.

Full Article:

For many Australians, superannuation forms a significant part of their net worth. It is crucial to understand the implications for your superannuation upon your death and how to ensure it is distributed according to your wishes.

Impact of Member Death on SMSF Trustees

Single Member, Two Individual Trustees:

The surviving trustee (a relative) typically controls the death benefit’s disposal. If both trustees die, the trust deed or the Superannuation Industry (Supervision) Act 1993 (SISA) allows a legal personal representative to act as trustee until the death benefit is payable.

Single Member, Sole Director of Trustee Company:

Surviving shareholders can appoint a new director, who will control the SMSF. If the deceased was the sole shareholder, their executor can become the director.

Single Member, Two Directors of Corporate Trustee:

The surviving director remains in control. Shareholders can appoint new directors, potentially altering control.

Superannuation and Death

Upon a member’s death, a superannuation fund pays a death benefit, typically outside the estate unless directed by a Binding Death Benefit Nomination (BDBN). Without a BDBN, the fund’s trustee decides who receives the benefit among dependents and legal personal representatives.

Defining Dependents

Dependents under SISA include:

  • Spouse, de facto spouse, child (including step-children, adopted children, surrogacy/IVF children)
  • Any person in an interdependency relationship, involving close personal relationships, cohabitation, financial support, and domestic care.
The Role of a BDBN

A BDBN ensures your death benefit distribution aligns with your wishes. Without it, trustees have discretion, potentially against your intentions.

BDBNs offer benefits such as:

  • Binding trustees to your directions.
  • Excluding the benefit from your estate, avoiding family provision claims and delays.
  • Potential tax advantages.

To remain valid, a BDBN must comply with the trust deed and regulatory requirements, including:

  • Written format.
  • Signed and dated by the member, witnessed by two adults not nominated in the BDBN.
  • Witness declarations.
  • Renewed every three years unless non-lapsing.
Common Pitfalls and Case Studies

Death of a Trustee:

In Katz v Grossman, despite the father’s non-binding nomination, the daughter distributed the benefit to herself by validly appointing her husband as co-trustee. This could have been avoided with a BDBN.

Defective BDBN:

In Donovan v Donovan, the member’s failure to specify ‘binding’ rendered the nomination non-binding, altering the intended benefit distribution.

Control Issues:

In Wooster v Morris, despite a valid BDBN, the trustee’s challenge resulted in significant legal costs. The court upheld the BDBN, highlighting control’s importance.


Dealing with an SMSF member’s death requires careful planning and legal advice to ensure intended outcomes and avoid complications. Seek professional guidance to navigate these complexities effectively.