By Adrian Casabene & Daniel Winkle

The BKM team was pleased to have welcomed Sam Baring from Hall & Wilcox to our office for an insightful training session on Superannuation Strategies within Estate Planning.

The session examined how superannuation interacts with estate planning and outlined key strategies, considerations, and documentation requirements to help ensure client wishes are carried out in a tax-effective and compliant manner.

Superannuation Proceeds Testamentary Trust

A key consideration in estate planning is how to manage a member’s accumulation balance upon death. One option discussed was the use of a superannuation proceeds testamentary trust, which may be relevant for clients with balances exceeding $2 million, those in blended family situations, or where minor children are involved.

Testamentary trusts can provide flexibility, potential tax advantages and asset protection, provided they are appropriately structured. It is generally important that death benefits pass directly to tax dependants (such as a spouse or dependent children). Once the last tax dependant dies, any remaining benefits are typically directed to the estate.

One area given special attention during the session, due to increased litigation in recent years, was Binding Death Benefit Nominations (BDBNs).

Death Benefit Nominations

Death Benefit Nominations (DBNs) are a vital component of superannuation estate planning. They allow members to direct how superannuation death benefits are distributed, assist in aligning outcomes with the member’s will, and can reduce the risk of disputes.

However, DBNs should be reviewed and updated regularly to reflect changes in personal circumstances and legislative requirements. The three main types of DBNs are:

• Non-binding nominations – act as a guide for the trustee, who ultimately retains discretion over payment of the death benefit.
• Binding nominations (BDBNs) – legally compel the trustee to distribute benefits according to the member’s instructions, provided the nomination is valid.
• Reversionary nominations – typically attached to an income stream, automatically transferring the pension to a nominated dependant on death.

Advantages of Binding Death Benefit Nominations

BDBNs provide a high degree of certainty and control, ensuring that benefits are paid in accordance with the member’s wishes. They can reduce the risk of disputes among beneficiaries, align superannuation outcomes with the member’s broader estate plan, and may, in some cases, keep superannuation proceeds outside the estate—potentially reducing exposure to family provision claims (except in NSW). When prepared alongside a will, BDBNs form part of a cohesive estate planning strategy.

Disadvantages and Issues with BDBNs

The certainty provided by BDBNs comes with some limitations. They can become outdated if a member’s personal circumstances change—particularly following events such as marriage, divorce, or the birth of a child. Tax laws may also change over time, potentially affecting the effectiveness of the original strategy.

Additionally, BDBNs can reduce flexibility in situations where trustee discretion might have been beneficial, and they require regular review to remain valid and aligned with the member’s objectives.

Withdrawal Strategies and Tax Implications

Understanding the distinction between a member benefit and a death benefit is essential due to differing tax outcomes. Where a withdrawal request is made and authorised before death, the amount may be treated as a member benefit, becoming a personal asset that can later be distributed tax-free to non-tax dependants. If the payment is treated as a death benefit, tax outcomes will depend on the recipient’s dependency status, with payments to non-dependants subject to 15% tax plus Medicare levy.

Recent ATO guidance highlights the importance of timing, documentation, and trustee actions, and suggests greater care is required when considering pre-death withdrawals.

Final Thoughts

Superannuation is a key consideration within the broader estate planning process, and its treatment can have significant tax and succession implications. Regular review, appropriate documentation, and careful planning can help ensure that superannuation entitlements are managed and distributed in accordance with the member’s objectives and legal requirements.

If you have any questions on the above, or any other queries relating to your superannuation or estate planning matters, please don’t hesitate to contact your BKM representative.