So what is a Binding Death Benefit nomination (BDBN) and why should we care?
Essentially, a BDBN, or binding death benefit nomination, is a written direction to your superannuation fund that instructs the fund as to whom to pay your death benefit and how it should be paid when you die.
Regulation 6.17A of the Superannuation Industry (Supervision) Regulations 1994 (Cth) sets out the requirements in relation to Binding Death Benefit Nominations, including that:
- nominated recipients of the benefit must be either your legal personal representative or one of your dependants.
- Binding Death Benefit Nominations cease to have effect, or expire, after a maximum period of three years at which point they may be confirmed for another three year period.
- in order to confirm, amend or revoke a Binding Death Benefit Nomination, you need to provide a notice to your fund in writing. That notice must be signed and dated by you in the presence of two witnesses, neither of whom is mentioned in the notice as a nominated recipient.
Importantly, where your Binding Death Benefit Nomination instructs payment to a dependent, those funds do not automatically form part of your estate. As such, taking a strategic approach to nominating recipients of your death benefit can reap valuable benefits, especially taking into account implications concerning taxation and creditors’ claims. Likewise, if you have made a BDBN but it has lapsed at the time of your death, the consequences can be significant since decisions concerning the distribution of your death benefit funds would then typically fall to your super fund. As noted by the Australian Law Reform Commission (ALRC) in its 2017 report, Elder Abuse – A National Legal Response (ALRC Report 131), where a BDBN is not confirmed and extended prior to a person’s death, the relevant funds may be distributed:
- in a way that the member had not intended;
- in a manner less ideal for tax purposes when compared with the lapsed binding death nomination; or
- in a manner that results in the funds forming part of the estate of the member which may be subject to certain creditors’ claims.
So what happens if, at the time your Binding Death Benefit nomination has expired, you have lost mental capacity – Who has the power to confirm and extend your BDBN on your behalf and does that person/s also have the power to amend or revoke your BDBN?
Whilst it may seem obvious that such power would likely be in the hands of the person/s to whom you have granted an enduring power of attorney, ALRC Report 131 draws attention to the fact that this remains a murky area of the law as there is no clear guidance in the relevant legislation and, at the time the report was released, the matter had not been tested in the courts nor in the relevant tribunal, the Superannuation Complaints Tribunal (SCT):
“In Determination D07–08\030, the SCT stated that, in principle, an enduring power of attorney would permit an attorney to complete and sign a BDBN on behalf of the member. As the Tribunal did not decide the matter on the basis of the binding nomination, however, its comments are not of direct application. Hence, the Law Council of Australia observed that ‘[w]hether the scope of an attorney’s authority extends to making a nomination remains a matter of debate’”
One of the contentious aspects of the debate revolves around the fact that testamentary decisions and actions such as creating or amending a person’s will cannot be performed under an enduring power of attorney. Whilst a BDBN is not strictly considered a testamentary tool, both the Law Council of Australia and the ALRC take the position that BDBNs are “will-like in nature and they should be treated in policy terms ‘similarly to wills’”.
Recently, however, the Queensland Supreme Court held that two attorneys acting under an enduring power had validly exercised their power by confirming and extending for a further 3 years a BDBN made by a member of a self-managed superannuation fund. Importantly, since the attorneys in that instance merely confirmed the nomination previously made by the member himself, it was deemed that such a transaction was not one “in which there is, or may be, a conflict between the duty of the attorney towards the principal, and the interests of the attorney.”
Yet, in that same case (Re Narumon Pty Ltd [2018] QSC 185), it was held that another BDBN made by the same two attorneys which varied the member’s original nomination was not a valid exercise of the enduring power of attorney. In the circumstances, the member whom the attorneys acted for had invalidly nominated that a 5% distribution go to one the two attorneys (the member’s sister) who was not a dependent of the member. The attorneys attempted to overcome this problem by amending the BDBN such that the 5% distribution due to the sister was added instead to the percentage due to the other attorney who was the member’s wife and thus a valid nominee. Although such variance was expressly approved by both attorneys, it nevertheless conflicted with the member’s original nomination and served to benefit one of the attorneys. As a result of the amended BDBN being held invalid, the 5% share due to an invalid nominee fell to be dealt with by the trustee of the super fund in accordance with the relevant trust deed.
Whilst the law concerning powers of attorney in NSW differs slightly from the relevant law in Queensland, Jen McMillan (Legal Practice Consultant, Lawcover) suggests that the amended BDBN would not be authorised under the law in NSW either. She notes, however, that it remains to be seen whether Re Narumon Pty Ltd will be followed in NSW. In the latest edition of the NSW Law Society Journal, Ms McMillan published the following recommendations for drafting enduring powers of attorney:
- Ask your principal client whether he or she would want their attorney to be able to confirm, make, or revoke a Binding Death Benefit Nomination.
- If the principal does not want the attorney to have this power, include an express limitation in the instrument to that effect.
- If the principal does want the attorney to have this power it would be prudent to include an express authority to that effect in the power of attorney.
- A principal may wish to give this power to on but not all attorneys in an instrument (eg while the spouse may have this authority, the child who is substitute attorney may not). If this is the case, care needs to be taken to draft the power of attorney to make it clear who is authorised and who is not.
Contact us here at the Law office of Conrad Curry to ensure that your powers of attorney are drafted or updated in a manner consistent with the current state of the legal landscape.
