This week in Super Informed
Binding death benefit nominations: what they are and why they matter
What makes a nomination valid - and what can invalidate it
The lapsing trap that catches trustees off guard
News bites: ATO draft ruling on inherited homes, ATO audit warning on bank statements
Trustee Tip: When did you last check your binding death benefit nomination?
The Document That Controls Your Super After You Die
Your superannuation does not form part of your estate.
This surprises many trustees. When you die, your will controls your bank accounts, your investment properties, and your personal assets. It does not control your super. Your super sits inside a trust - your SMSF - and the rules that govern where it goes come from superannuation law and your fund's trust deed, not your will.
Without a valid binding death benefit nomination (BDBN) in place, the trustee of your fund decides who receives your super. In a two-member SMSF, that typically means the surviving spouse or co-trustee makes the call. In a fund with a corporate trustee, it means the directors of that company. Either way, the decision is theirs. Not yours, and not your will's.
A BDBN changes that. It is a written instruction from you, as a member, to the trustee of your fund, directing how your super benefit is to be paid when you die. When it is valid, the trustee is legally bound by it. The discretion is removed.
Who you can nominate
The law restricts who can receive a death benefit nomination. You can only nominate a dependant or your legal personal representative.
Dependants include your spouse or de facto partner, your children (of any age), anyone in an interdependency relationship with you, and any person who was financially dependent on you at the time of death.
Example: You can nominate your adult children or a financially dependent sibling, but you cannot nominate a friend or business partner unless they meet one of the dependant definitions above.
Your legal personal representative (LPR) is the executor of your estate. Nominating your LPR directs your super into your estate, where your will then controls the distribution. This is a legitimate strategy, but it carries a tax cost. Super paid via the estate loses its tax-free treatment for adult children who are not financially dependent on you. They may pay up to 17% tax (15% plus Medicare levy) on the taxable component. Direct nomination to those children would usually be tax-free. Discuss this with a specialist before choosing this approach.
What makes a nomination valid
A BDBN must meet specific requirements to be legally binding. It must be in writing. It must be signed and dated by you in the presence of 2 witnesses, both of whom are over 18 and neither of whom is named as a beneficiary in the nomination. It must comply with your fund's trust deed.
That last point matters more than most trustees realise. Not all trust deeds are the same. Some older deeds do not permit non-lapsing BDBNs (more on this below) or impose extra requirements. If your nomination type is not supported by your deed, the nomination may be invalid regardless of how carefully you executed it.
The lapsing trap
There are two types of BDBNs: lapsing and non-lapsing.
A lapsing BDBN expires after 3 years. If you do not renew it before it expires, it becomes invalid and trustee discretion is restored. Many trustees set up a BDBN when they first establish their fund and do not think about it again. Three years later, it has quietly lapsed.
A non-lapsing BDBN does not have an expiry date. It remains in force until you revoke or replace it. Many modern SMSF trust deeds allow non-lapsing nominations, but this is not automatic. It depends entirely on your specific deed. If you are unsure whether your deed supports one, your SMSF administrator can confirm in minutes.
What trustees should consider
This week, consider checking three things.
Whether your fund has a BDBN in place at all.
If it does, when it was signed and whether it is still within its 3-year window (if lapsing).
Whether the nominated beneficiaries still reflect your actual intentions - circumstances change, and a nomination made 5 years ago may no longer match your wishes.
If you use a corporate trustee structure, it is also worth confirming that your BDBN is documented correctly under the deed rules that apply to that structure. One common issue is that if a director of the corporate trustee dies, the remaining directors may have full discretion over benefit payments unless the BDBN is both valid and explicitly binding on the company. The rules governing how a corporate trustee must respond to a BDBN can differ from individual trustee arrangements, and some older deeds are silent on the point entirely.
This is not an area to leave to chance. The financial stakes are significant, and the legal requirements are specific. A specialist SMSF adviser or estate planning lawyer can review your current nomination and confirm whether it will do what you intend.
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News bites
ATO issues draft ruling on inherited homes and CGT - This one sits outside your SMSF directly, but matters for your broader estate plan. In January, the ATO released a draft ruling clarifying when a family home inherited from a deceased estate can be sold without paying capital gains tax. The short version: if your will simply gives a trustee the discretion to let someone live in the home, that may not be enough to preserve the tax exemption. The will needs to expressly name the person and grant them the right to live there. If your will uses a testamentary trust and does not spell this out clearly, it is worth a conversation with your estate planning lawyer.
ATO warns data feeds do not replace bank statements - The ATO has flagged a recurring issue in SMSF audits: trustees and administrators are pushing back when auditors request bank statements for accounts that use automatic data feeds. The ATO's position is unambiguous - data feeds can support audit work, but they do not replace bank statements. Provide the year-end bank statement when your auditor requests it. It is a compliance requirement, not a preference. For more on what the ATO is focusing on this year, see our earlier coverage here.
Trustee Tip - This week: check your BDBN is still valid
This week, consider pulling out your fund's binding death benefit nomination and checking two things: the date it was signed, and who is nominated.
If it was signed more than 3 years ago and you have a lapsing nomination, it has expired. If your personal circumstances have changed since it was signed - a new spouse, adult children, a change in financial dependants - the nomination may no longer reflect your intentions even if it is technically still valid.
Your SMSF administrator or accountant will have a copy on file. A quick email today asking them to confirm the status of your current BDBN takes minutes and could prevent a significant problem for the people you intend to leave it to.
A BDBN is one of those documents that sits in a drawer until it matters enormously. Getting it right now costs almost nothing. Getting it wrong costs the people you're building this fund for.
Until next Thursday, Sam Corrie, Super Informed superinformed.com.au
This newsletter is for educational purposes only and does not constitute financial advice. Always consult a licensed financial adviser or SMSF specialist before making decisions about your fund.