Death benefits can get complex fast, said BT head of financial literacy and advocacy Bryan Ashenden, and financial advisers can easily get tripped up if they are keeping a close eye on what their clients want and whether their circumstances have changed.
“It’s very important to know your client’s superannuation wishes in the event of their death, to avoid legal risk or reputational fallout,” Ashenden said.
“Equally, remembering super can only be distributed to someone who qualifies as a dependant at the time of death, or the estate, is important when family circumstances have changed.”
The baseline scenario of a married client whose benefit is paid to the surviving spouse is relatively straightforward, but the more complicating factors involved – be it children with multiple partners or someone that has adult children and remarried later in life – estate planning needs can shift quickly.
According to Ashenden, the degree of complexity possible in family circumstances underscores why it is essential for advisers to “understand all superannuation death benefit options and which ones best match client’s wishes”.
The first option is having no nomination, which leaves it up to the trustee to decide where the money goes.
“The trustee must act in accordance with its trust deed, and the trust deed for every super fund can be different. In BT Panorama, if there is no nomination, the trust deed directs us to pay the benefits to your estate, which then hinges entirely on your will and how well it has been drafted,” he said.
A trustee discretion nomination is essentially a non-binding request to the trustee that they are not obligated to follow, however Ashenden noted they “typically will”.
“That might work well for some situations; however, it can leave the door open to dispute in complex family situations,” he added.
Non-lapsing nominations don’t expire and are generally binding, however, significant life events such as marriage or the birth of a child can invalidate the nomination and leave the decision with the trustee to potentially consider the member’s updated family circumstances when distributing benefits.
The other option of a three-year binding death benefit nomination (BDBN), which BT Panorama is set to introduce in October, strictly adheres to the wishes of the deceased.
While it must be renewed every three years with a signed, witnessed form, the major life changes that can impact a non-lapsing nomination do not automatically invalidate the BDBN.
“For example, if you nominated your child as beneficiary and then divorce and remarry, that would not invalidate the binding nature of this type of nomination,” Ashenden said.
“Your child would remain the beneficiary until you amended it, however, your new spouse won’t be entitled to anything, unless you actively change your nomination.”
The key to choosing which of the options to use, he added, is understanding what the client wants.
“Advisers must have these conversations and document them thoroughly. Clarity in client wishes means clarity in outcomes, reducing disputes and reputational damage,” he said.
BT transformation and advice technology manager Melissa Rhoades said the three-year binding death benefit nomination option is ideal when client’s wishes are clear and regularly updated.
This is particularly true when their situation is unlikely to change in the ways that invalidate a non-lapsing nomination. However, that doesn’t mean it’s always appropriate for every circumstance.
“Advisers may be underestimating the value of trustee discretion in situations where family dynamics have changed. The non-lapsing binding nomination allows room for those changes to be reflected – especially when clients forget or delay updating their nominations,” Rhoades said.
“The difference in treatment under different nominations is important for advisers and their clients to understand, to ensure they use the right nomination type for their client’s current and possible future circumstances The bottom line is that any nomination should be regularly reviewed and updated, otherwise unintended consequences can arise.”
BT’s head of distribution, Jason Brown, said providing an expanded number of death benefit nomination options would help advisers deal with the nuances of each client situation.
“We’re keen for advisers to understand all four options fully and to ensure they select the nomination that best fits each client’s unique circumstances,” Brown added. “It’s about being proactive – not just waiting until there’s a problem.”
