Death Benefits - Binding vs Non Binding - What does it even mean?

Making the Right Choice for Your SMSF

One of the most overlooked parts of having a Self-Managed Super Fund (SMSF) is deciding what happens to your super when you pass away. Many people assume their super will simply follow their will, but that’s not always the case. Superannuation is held in a trust structure, which means it doesn’t automatically form part of your estate unless you set it up that way.

To make sure your super goes where you want it to, you need to have a valid death benefit nomination in place. But here’s where it gets tricky—there are different types of nominations, and choosing the wrong one can lead to unexpected tax, legal disputes, or your wishes not being followed.

So, what’s the difference between a Binding Death Benefit Nomination (BDBN) and a Death Benefit Agreement (DBA)? And which one is right for you? Let’s break it down.

What is a Death Benefit Agreement (DBA)?

A Death Benefit Agreement (DBA) is an arrangement between you and your SMSF trustee that outlines how your super should be distributed when you pass away. However, unlike a Binding Death Benefit Nomination, a DBA is not legally binding. This means the SMSF trustee has some discretion in how benefits are paid.

For example, if tax laws change or a beneficiary’s financial situation shifts, the trustee can adjust the way payments are made to create a better tax outcome. However, this also means that your wishes may not be followed exactly as you intended—which could be a problem if beneficiaries have conflicting interests.

A DBA remains in place unless you update or remove it, making it a "set and forget" option—but only if you’re comfortable with your trustee having the final say.

Pros of a DBA:

• Offers flexibility if circumstances change (e.g., tax laws, relationships, or financial needs)

• Allows trustees to make tax-efficient decisions when distributing benefits

• No need to renew—it remains valid until updated or replaced

Cons of a DBA:

• Since it’s not legally binding, trustees can use discretion when distributing funds

• Risk of disputes among beneficiaries if there are disagreements

• If you nominate someone who is not a dependant (e.g., a sibling), their portion may be invalid

What is a Binding Death Benefit Nomination (BDBN)?

A Binding Death Benefit Nomination (BDBN) is a legally binding instruction that tells your SMSF trustee exactly how your super should be paid out when you pass away. Unlike a DBA, the trustee has no discretion—they must follow your instructions, regardless of tax implications or changes in your circumstances.

BDBNs need to be renewed every three years, unless you have a non-lapsing BDBN. If your BDBN expires without being updated, your SMSF trustee will revert to using their discretion, similar to a DBA.

Pros of a BDBN:

• Guarantees that your super is distributed exactly as you intend

• Minimises the risk of disputes among beneficiaries

• Gives certainty to your estate planning

Cons of a BDBN:

• Must be renewed every three years 

• No flexibility—may not allow adjustments for changes in tax laws or personal circumstances

• If set up incorrectly, it could be invalid, meaning your super is paid at the trustee’s discretion anyway

DBA vs. BDBN: Which One is Right for You?

Choosing between a DBA and a BDBN depends on how much control vs. flexibility you want in your SMSF estate planning.

A DBA might be better for you if:

• You want your trustee to have some flexibility to make tax-efficient decisions

• You expect your situation may change (e.g., changes in relationships, tax laws, or financial needs)

• You trust your SMSF trustee to make fair and responsible decisions for your beneficiaries

A BDBN might be better for you if:

• You want certainty that your super will go exactly where you intend

• You want to minimise the risk of legal disputes between beneficiaries

• You don’t want to leave decisions in the hands of your trustee

It’s also worth noting that if you want to leave super to someone who isn’t a ‘dependant’ under super law, neither a DBA nor a BDBN will work. In that case, you may need to direct your superannuation to your estate instead, so that your will can distribute the funds properly.

What Are the Next Steps?

Since SMSF estate planning isn’t one-size-fits-all, it’s important to regularly review your death benefit arrangements to make sure they still align with your wishes.

Here’s what you should do next:

1️⃣ Check your current nomination. Do you have a DBA or a BDBN in place? If so, review who you’ve nominated and whether they are legally eligible to receive your super.

2️⃣ Decide whether a BDBN or a DBA is the best fit for you. If you want more certainty, you may want to switch to a BDBN. If flexibility is more important, a DBA might still be the right choice.

3️⃣ Make sure your nomination is up to date. If you have a BDBN, check whether it’s expired. If your personal circumstances have changed (e.g., marriage, divorce, new children), update your nomination accordingly.

4️⃣ If you want to leave super to a non-dependant, consider directing it to your estate instead. This allows you to distribute your super through your will and avoid tax complications.

Superannuation law can be complex, and a small mistake can lead to unintended consequences. If you’re unsure whether your SMSF is set up correctly, take the time to review your nominations today—and call us if you're unsure. A little planning now can save your loved ones from major stress later.