Binding Death Benefit Nominations in Victoria

What a BDBN Is — and Is Not

A binding death benefit nomination is a written direction from a member to the trustee of their superannuation fund specifying how the member's death benefit is to be paid. Where the nomination is valid, in force at the date of death, and compliant with the fund's governing rules and the relevant provisions of the Superannuation Industry (Supervision) Act 1993 (Cth) (SIS Act) and the Superannuation Industry (Supervision) Regulations 1994 (Cth) (SIS Regulations), the trustee must pay the benefit as directed rather than exercising its own discretion.

It is commonly said that a nomination "overrides" a Will. That is inaccurate, and the inaccuracy causes real planning errors. The two documents ordinarily govern different property. A Will disposes of the assets the deceased owned personally at death. Superannuation is not one of those assets — it is held on trust by the fund. What a nomination does is direct where the fund's payment goes:

• Direct payment. Where the nomination directs payment to an eligible beneficiary, the benefit is paid to that person and does not pass through the estate at all. The Will has nothing to say about it.
• Payment to the legal personal representative. Where the nomination directs payment to the member's legal personal representative (LPR), the benefit comes into the estate and is then administered with the rest of the estate — under the Will if there is one, or under the intestacy rules if there is not.

The expression legal personal representative is broader than "executor": it covers an executor to whom probate has been granted and an administrator to whom letters of administration have been granted, including on intestacy. Where a nomination directs payment to the LPR, the trustee will ordinarily require a grant before paying. See our guide does your Will control your superannuation?

Do You Need One?

Not every member needs a binding nomination. Without one, the trustee must decide, within the framework of the governing rules and superannuation law, how to pay the benefit among the member's dependants and the LPR. Where the family circumstances are simple and uncontroversial — a long marriage, no children from a previous relationship, no SMSF, no testamentary trust — the trustee's discretion may reach an acceptable outcome, and a non-binding nomination indicating the member's wishes may be enough.

A valid binding nomination becomes considerably more valuable where:

• there is a blended family, a second relationship, or children from more than one relationship;
• the member has separated but not divorced, or has a former partner who may still assert dependency;
• the member wants the benefit paid to the estate so it can fund a testamentary trust for a minor, a vulnerable beneficiary or asset protection purposes;
• a large insurance sum sits inside the fund and would significantly change the balance between beneficiaries;
• the member controls an SMSF and does not want surviving trustees exercising a discretion over their benefit;
• relationships within the family make a trustee decision likely to be disputed.

Binding, Non-Binding, Lapsing and Non-Lapsing

Four labels are used in practice, and the differences matter.

• Non-binding nomination. An expression of the member's wishes. The trustee must genuinely consider it but retains discretion to pay the benefit differently.
• Binding nomination. A direction the trustee must follow, provided the nomination is effective and the recipient is eligible at the relevant time.
• Lapsing binding nomination. In APRA-regulated funds (retail, industry and corporate funds), the familiar three-year nomination is the statutory form associated with section 59(1A) of the SIS Act and regulation 6.17A of the SIS Regulations. Regulation 6.17A prescribes the conditions for that kind of nomination, including that it ceases to have effect after the prescribed period — ordinarily three years — and that it be signed and dated by the member in the presence of two witnesses who are adults and are not nominated beneficiaries, each of whom signs a declaration.
• Non-lapsing binding arrangement. Many APRA-regulated funds also offer a nomination that does not expire. It is important to understand that this is not simply a regulation 6.17A nomination with the three-year limit waived. A non-lapsing arrangement is commonly supported by a different legal mechanism — typically the fund's own governing rules and a trustee process for accepting and confirming the nomination — rather than by regulation 6.17A. Availability, terminology, the form required, the effect of a change in circumstances and the process for confirming or revoking the nomination all vary between funds.

Terminology is inconsistent across the industry, so the practical question is always: under which rules was this nomination made, what does it require, and is it still effective today?

SMSFs After Hill v Zuda

Self-managed superannuation funds sit on a different footing. In Hill v Zuda Pty Ltd [2022] HCA 21 the High Court held that regulation 6.17A does not apply to SMSFs. The consequence is that the three-year lapsing rule and the regulation's witnessing formalities are not imposed on SMSF nominations by that regulation.

It does not follow that the trust deed "alone" governs. The validity and operation of an SMSF nomination depends on the combination of:

• the fund's current trust deed and every amendment made to it — including whether the amendments were validly made;
• applicable provisions of the SIS Act, including section 55A — which prevents a regulated fund's governing rules from permitting death benefits to be cashed after death otherwise than in accordance with the prescribed payment standards, inconsistent governing rules being invalid to that extent — and section 59, which governs the extent to which persons other than the trustee may direct the trustee, and which by section 59(1) expressly excludes self-managed superannuation funds;
• the prescribed death-benefit payment standards, which continue to control to whom and in what form a benefit may be cashed;
• the general law of trusts;
• the terms of the nomination document itself; and
• related documents — pension documentation, trustee minutes, and the trustee company's constitution and records.

Older SMSF deeds vary greatly. Some require renewal every three years, mirroring the APRA position even though it is not imposed on them; some require witnessing; some require the trustee to accept the nomination before it binds. A nomination signed on a generic form, without reference to the fund's actual deed, is a well-recognised source of failure.

Whether a nomination can be implemented in an SMSF also depends on who validly holds office as trustee or director after the member's death, and on control of any corporate trustee. Those questions are dealt with in detail in our companion guide, what happens to an SMSF when a member dies, which covers fund continuation, section 17A trustee and member composition, appointment of the deceased member's LPR, individual versus corporate trustees, and control of the trustee company. Those issues are not repeated here.

Who Can Be Nominated

Superannuation law permits a death benefit to be paid only to a limited class. A nomination in favour of anyone outside that class generally cannot be given effect. The permitted recipients are:

• a spouse, including a de facto spouse and a spouse of the same sex, within the definition in section 10 of the SIS Act;
• a child within the statutory definition, which is broader than a biological child and extends to adopted children, and to stepchildren and children of a spouse in the circumstances the definition covers;
• a financial dependant — a person who was financially dependent on the member at the relevant time;
• a person in an interdependency relationship with the member, assessed against the statutory criteria; or
• the legal personal representative — the executor or administrator of the estate.

A critical point is that eligibility must be satisfied at the legally relevant time. For a dependant, that is broadly the date of death, not the date the nomination was signed. Eligibility is a status that can be gained and lost:

• Former spouses. A person who has ceased to be a spouse — by divorce, or by the ending of a de facto relationship — will ordinarily no longer qualify in the spouse category. That does not automatically make them ineligible. Depending on the facts, a former spouse could still qualify as a financial dependant or as a person in an interdependency relationship. It is a factual question, and it should not be assumed either way.
• Stepchildren. A stepchild's position depends on the statutory definition of child and the facts, including whether the relationship between the member and the stepchild's parent subsisted. It is not accurate to say every stepchild is ineligible, nor that every stepchild qualifies.
• Adult children. A child of any age falls within the superannuation definition of dependant, so an adult child can ordinarily receive a lump sum. Whether they are a "death benefits dependant" for tax purposes is an entirely separate question, addressed below and in our guide to superannuation death benefits and adult children.
• Changed dependency. A person who was financially dependent when the nomination was made may not be at death, and vice versa. Interdependency can likewise begin or end.

Nominations also allocate proportions of the death benefit. They do not generally give a beneficiary a particular asset of the fund — a specific property or parcel of shares in an SMSF, for example. The allocations must be expressed in the manner the fund's form and rules require and, where required, total 100%. Where a member wants a particular in-specie outcome, that has to be engineered through the deed, the trustee's payment powers and coordinated estate planning, not through the nomination alone.

Validity, Execution and Revocation

A nomination may fail because its execution or other formal requirements were not satisfied. The recurring problems are these.

• Wrong execution. For a regulation 6.17A nomination, the requirements as to signing, dating and witnessing by two adults who are not nominated beneficiaries, each signing a declaration, are conditions of effectiveness — not formalities to be approximated. For an SMSF, the deed's own execution requirements govern, and they must be located and followed.
• Wrong form. Using a generic form, or another fund's form, rather than the form the trustee requires or the deed contemplates.
• Ambiguity. Directions such as "to my family" or "to my children equally" without identification, or allocations that do not add up as the rules require.
• Wrong description of the estate. Naming an individual, or "my estate", where the fund's rules and the law require the direction to be expressed in favour of the legal personal representative. This was the practical lesson of Munro v Munro, discussed below.
• Lapse. A lapsing nomination not renewed in time. Diarising the renewal date is a discipline, not an optional extra.
• Capacity. A nomination made when the member lacked capacity may be challenged. Where vulnerability is reasonably foreseeable — age, illness, a recent diagnosis, medication affecting cognition — contemporaneous evidence of capacity is a sensible protection, although it is not a universal legal requirement.

Revocation and replacement. How a nomination is revoked depends on the same sources that govern how it is made. Many fund rules provide that a new valid nomination revokes the earlier one, and most provide a specific revocation form. In an SMSF, the deed controls. Where multiple nominations exist across several funds — or several versions within one fund — the question of which is operative is a common source of dispute, which is why old nominations should be located and dealt with rather than left in circulation.

If a nomination is ineffective. It is not correct to say a lapsed or invalid nomination always has "no effect at all". The consequence depends on the governing rules. It may be disregarded entirely; it may be treated as non-binding guidance which the trustee must consider; it may leave the trustee to exercise a discretion among the dependants and the LPR; or it may engage a default rule in the deed, such as payment to the estate or to the surviving spouse. Establishing which of those applies is the first step in any dispute.

If a beneficiary predeceases the member. The rules again govern: some funds treat the nomination as wholly invalid, some treat only the affected share as failing, and some leave the trustee a discretion over that share. Review a nomination promptly after the death of any nominated person.

Direct Payment or the Estate?

A central decision in any nomination is whether the benefit should be paid directly to a dependant or to the LPR for administration through the estate. Neither option is universally better. They produce different outcomes on timing, control, exposure to claims and tax.

The right answer is fact-specific. Liquidity for a surviving spouse, minor or vulnerable beneficiaries, an intended testamentary trust, creditor exposure and the prospect of a family provision claim are all relevant factors — but neither route can be recommended without reviewing the complete estate plan, the tax components of the benefit, the eligibility of each intended recipient, the pension documentation and the fund's governing rules. On family provision generally, see Part IV claims under the Administration and Probate Act 1958 (Vic).

Testamentary Trusts

A testamentary trust cannot ordinarily be nominated directly, because it is not itself a permitted recipient of a superannuation death benefit. The trust does not exist at the date of the nomination, and it is neither a dependant nor the legal personal representative.

The usual mechanism is therefore two-limbed: nominate the LPR so the benefit is paid into the estate, and draft the Will so that the estate — including the superannuation proceeds — passes into the testamentary trust on the intended terms. Some Wills establish a dedicated superannuation proceeds trust for this purpose. Both limbs must be in place; a Will containing a beautifully drafted trust achieves nothing if the nomination directs the benefit elsewhere, and a nomination to the LPR achieves little if the Will does not deal sensibly with the money when it arrives.

The tax consequences of routing a benefit through the estate and into a trust need to be assessed, not assumed. See testamentary trusts explained.

Reversionary Pensions

Where the member is already drawing an income stream, a second mechanism may be in play. A reversionary pension is a feature of the pension itself: on death it continues automatically to the nominated reversionary beneficiary, provided that person is then eligible. A reversion and a binding nomination can point in different directions, and no universal rule decides which prevails. That depends on:

• the pension commencement documentation and the terms on which the reversion was established;
• the fund's trust deed or governing rules;
• the terms and scope of the nomination — including whether it purports to deal with the pension interest at all;
• the eligibility of the intended reversionary beneficiary at the date of death;
• the SIS Regulations' pension and death benefit payment standards; and
• transfer balance cap and tax consequences, which differ between a reversionary continuation and a lump sum, and which are subject to their own timing rules.

Prepared years apart by different advisers, these documents can be inconsistent. Reconciling them is core review work, and it should be done while the member is alive and the documents can still be corrected.

Attorneys, Capacity and Incapacity

Whether an attorney under an enduring power of attorney can make, renew, confirm or revoke a binding nomination on behalf of a member who has lost capacity is not a question with one answer. It depends on:

• the terms and scope of the enduring power of attorney, including whether it extends to the relevant financial or superannuation matters and whether it authorises conferring a benefit on the attorney;
• the fund's governing rules or the SMSF deed, which may permit, restrict or say nothing about attorney action; and
• the general law, including the law of fiduciaries.

Re Narumon Pty Ltd [2018] QSC 185 is often cited in support of an attorney renewing a nomination. In that case the attorneys' extension of the member's existing nomination was upheld on the particular documents and facts because it maintained an arrangement the member had established. By contrast, the materially similar replacement nomination was not an authorised exercise of the attorneys' powers, and an allocation to an ineligible recipient was ineffective. The decision does not establish a general attorney power to make, renew or alter a BDBN, and it does not remove the need to examine the operative deed and the relevant pension documents.

Conflict and self-benefit. Where the attorney is also a likely beneficiary — commonly a spouse or an adult child — any action affecting the nomination raises conflict of duty and interest concerns. An attorney who signs or renews a nomination in their own favour without clear authority invites challenge, and the transaction may be set aside.

Capacity at execution. A nomination made by a member who lacked capacity is vulnerable. Where vulnerability is reasonably foreseeable, obtaining contemporaneous evidence of capacity, and keeping a clear file note of the instructions, is prudent protection for everyone — including the intended beneficiaries who may later have to defend the nomination. That is a matter of good practice calibrated to the circumstances, not a blanket requirement in every case.

Tax Consequences

Superannuation death benefit tax is a separate system from superannuation eligibility. The distinction can materially affect the tax payable. The following is a high-level outline only; the position in any case should be confirmed with an accountant or a licensed adviser.

• Two different "dependant" tests. Who may receive a benefit is governed by the SIS Act definition of dependant. How the benefit is taxed is governed by the definition of "death benefits dependant" in section 302-195 of the Income Tax Assessment Act 1997 (Cth). The two overlap but are not the same. An independent adult child is ordinarily a dependant for superannuation purposes but usually not a death benefits dependant for tax purposes.
• Components. A benefit comprises a tax-free component and a taxable component. The tax-free component is generally not taxed in the recipient's hands. The taxable component may be, and the treatment differs between the taxed element and the untaxed element — the latter commonly arising where insurance proceeds form part of the benefit.
• Form of payment. Lump sums and income streams are treated differently, and whether a death benefit can be taken as an income stream depends on the recipient's category and, for a child, on age restrictions in the payment standards.
• Payment to the estate. Where a benefit is paid to the LPR, section 302-10 of the ITAA 1997 applies. In broad terms, the tax outcome is worked out by reference to the persons expected to benefit from the estate — so routing a benefit through the estate does not by itself change whether the ultimate recipients are tax dependants.

A nomination that is legally valid can still be tax-inefficient. Where a member has both a tax-dependant spouse and independent adult children, the allocation between them, and the choice between direct payment and the estate, can change the net result materially — a conversation for the lawyer and the accountant together.

Life Events and Review Triggers

Nominations decay. The document is accurate on the day it is signed and becomes progressively less so as life changes around it. Review the arrangement:

• on marriage, separation, divorce or the start or end of a de facto relationship;
• on the birth or adoption of a child;
• on the death of a nominated beneficiary;
• when a beneficiary's dependency or interdependency changes — a child becoming financially independent, a parent moving in, a carer relationship beginning;
• on starting, joining, restructuring or winding up an SMSF, or rolling over between funds — a rollover usually terminates the nomination in the old fund;
• when a pension is commenced, commuted or made reversionary;
• when insurance inside the fund is added, increased or cancelled;
• when the Will is updated, particularly if a testamentary trust is added or removed;
• on any material change in health or capacity; and
• at the renewal date for any lapsing nomination — which should be diarised when it is signed.

Separation deserves particular emphasis. Separation alone does not end a marriage, and a nomination in favour of a spouse may remain on foot long after the relationship has ended in fact. For blended families and second relationships, see superannuation, blended families and second relationships.

Challenging or Defending a Nomination

Where a nomination is contested, the grounds usually concern whether it was validly made and in force, whether the named person was eligible at the relevant time, whether the member had capacity, whether the execution requirements were satisfied, whether an attorney acted within authority, or whether the trustee has properly performed its role.

The pathways differ by fund type.

• APRA-regulated funds. A complaint ordinarily begins with the fund's internal dispute resolution process. Where jurisdiction is available, a complaint may then be made to the Australian Financial Complaints Authority. Time limits apply and can be short, particularly in relation to objections to a proposed distribution, so advice should be obtained immediately on notification.
• SMSFs. AFCA's jurisdiction does not extend to SMSF trustee decisions in the same way, so disputes commonly require court proceedings — concerning the validity of the nomination, the construction of the deed, the conduct of the trustee, or control of the fund and its trustee company.
• Estate proceedings. If the benefit is paid to the LPR, it becomes an estate asset and estate remedies, including family provision claims, may become relevant to it.

Two practical points deserve attention. The first is urgency: once a benefit has been paid, recovering it is materially harder, so anyone intending to object should act before payment. The second is preservation of documents: deeds and amendments, every version of every nomination, trustee minutes, fund correspondence, medical records relevant to capacity and evidence of dependency should be secured early. For the process in full, see our detailed guide to superannuation death benefit disputes.

Lessons from the Case Law

• Hill v Zuda Pty Ltd [2022] HCA 21. The High Court held that regulation 6.17A of the SIS Regulations does not apply to self-managed superannuation funds. The practical lesson is that SMSF members and advisers cannot rely on the three-year lapsing rule or the regulation's witnessing requirements as either a protection or a constraint; the deed and the surrounding documents must be read.
• Munro v Munro [2015] QSC 61. The nomination was expressed in favour of the "trustee of deceased estate" rather than the legal personal representative. The Court held it did not satisfy what was required, and the trustees retained a discretion. Terminology and compliance with the deed and the law are not cosmetic: a recipient who is not properly expressed as the LPR can defeat a clear intention.
• Re Narumon Pty Ltd [2018] QSC 185. The attorneys' extension of the member's existing nomination was upheld on the particular documents and facts because it maintained an arrangement the member had established. The materially similar replacement nomination was not an authorised exercise of the attorneys' powers, and an allocation to an ineligible recipient was ineffective. The case also required identification of the operative deed and consideration of whether the pension was reversionary.

Together these decisions make the same point: the outcome is determined by the documents that actually govern the fund, not by the expectations of the people involved.

Document Review Checklist

A properly conducted nomination review is a document exercise. Before advising, a solicitor will ordinarily want:

• the current trust deed and every amending deed, in sequence, for an SMSF;
• the current nomination and every earlier nomination still in circulation, across every fund;
• the fund's governing rules, product terms and the trustee-issued nomination and revocation forms;
• pension commencement documentation and any reversionary nomination;
• the most recent member statement, including the tax-free and taxable components and the taxed and untaxed elements;
• details of any insurance held inside the fund and its beneficiary arrangements;
• the current Will and any testamentary trust provisions;
• any enduring power of attorney, and details of who is acting;
• evidence of relationship, dependency or interdependency where a beneficiary's eligibility could be questioned; and
• for an SMSF, only those trustee-company and control documents needed to confirm that the nomination can be validly made and implemented — the wider succession analysis belongs with the SMSF member death review.

Inconsistencies survive because the nomination and the Will are reviewed separately. They should be read together, by the same adviser. Our wills and estate planning service page explains how we approach that work, and executor duties in Victoria covers what happens after death.

Sources

• Superannuation Industry (Supervision) Act 1993 (Cth) — including section 10 (definitions of dependant, spouse and child), section 55A (rules about cashing benefits after death of members) and section 59.
• Superannuation Industry (Supervision) Regulations 1994 (Cth) — including regulation 6.17A and the death benefit payment standards.
• Income Tax Assessment Act 1997 (Cth) — including section 302-10 (benefits paid to the estate) and section 302-195 (death benefits dependant).
• High Court of Australia — Hill v Zuda Pty Ltd [2022] HCA 21.
• Australian Taxation Office — superannuation death benefits.
• Moneysmart — Who gets your super if you die?
• Australian Financial Complaints Authority — complaint process and time limits for superannuation death benefit complaints.

Frequently Asked Questions