“The 2020 Global Pension Assets study revealed that Australia’s pension market is the most successful in the world, growing by 11.3 per cent per year over the last 20 years. This success raises a crucial question about what happens to our superannuation when we pass on,” Bixler said.

“We are seeing more people with larger super accounts balances upon death and more of these matters are ending up in court in a more contentious environment.”

Bixler said many issues arise regarding binding death benefit nominations due to a lack of understanding of who can be nominated, and nominations often fail because a single adult, with no children, may have nominated a parent, who is not classified as a dependant under the Superannuation Industry (Supervision) Act.

“Even though superannuation funds say they have information available to help members understand who can be a beneficiary, people often don’t take the time to read through and understand,” Bixler said.

“There is an assumption that in a will you can name anyone as a beneficiary so it is not intuitive that you have limitations on who can leave your superannuation when you pass. People will nominate grandchildren, nieces, nephews or charities and funds don't notify them that these may not be eligible beneficiaries which then means those nominations are not compliant.”

Although in SMSFs, where members are usually trustees as well and generally more likely to receive advice, there are still issues that surround BDBNs, most specifically in documentation.

“What tends to go wrong with SMSFs are things like the nomination form doesn’t comply, it is not signed or witnessed properly and because super is so strict with accurate documentation, if you get a generic form from an accountant and the SMSF deed requests a different format, the validity of those BDBNs may be questioned,” she said.

Bixler said estate planning is becoming more complex regarding superannuation with proposed changes and reforms. She added when superannuation was originally started it was a pension-only product designed to support employees and their dependents in retirement.

“We have since transitioned into a state where super is where the bulk of people’s money is kept – some from employer contributions and some from their own funds – and we are now dealing with a situation where there are large sums of money after people die,” she said.

To this end, Bixler said the Law Council of Australia in January proposed several reforms to deal with superannuation after death. One of the proposed reforms was to permit only one type of death benefit nomination – a non-lapsing, binding nomination with no limitation on who can be nominated to benefit.

The proposed reforms are largely intended to modernise references, ensure alignment with the Family Law Act, provide clarity, and ensure that superannuation splitting arrangements keep pace with developments in superannuation products and with broader superannuation policy.

The council provided a submission to Treasury recommending reform to the superannuation death benefit framework in the Superannuation Industry (Supervision) Act 1993 (Cth) (SIS Act) and Superannuation Industry (Supervision) Regulations 1994 (Cth) (SIS Regs).

The proposal is to simplify and improve the framework by amending the SIS Act to require that all superannuation death benefits form part of the estate of a deceased person, except where that person has made a binding death benefit nomination.

In the Law Council’s view, the proposal would provide greater certainty and autonomy for all members of superannuation funds in their succession planning. It would also be consistent with key rule of law principles by providing a clear, consistent and statutorily authorised means to distribute superannuation death benefits, determining disputes about distribution through judicial processes, applying settled principles, significantly reducing delays and also allowing charities to be included as beneficiaries of superannuation benefits.

“The Law Council recommendations are pushing for an allowance that superannuation forms part of the estate unless there is a BDBN. If there is a BDBN it is recommending that superannuation can be directed to anyone,” Bixler said.

“The proposal has a lot of positive elements that would enable people to gift in a way they want, especially their super benefits. It would broaden the scope of who can receive benefits. The next step is to enable charities to receive benefits tax-free and that could have a huge impact on people’s decision-making, and there is real scope that can incentivise philanthropic giving through super. Include a Charity is one of many organisations lobbying the government to change this legislation through the Productivity Commission process currently going through parliament, allowing Australian DGR charities to be named in superannuation death nominations. If accepted, this proposal would enable Australian DGR charities to receive superannuation death benefits subject to a valid nomination,” she said.

Bixler said under the present rules and regulations, it is important for people making BDBNs to get advice to ensure their superannuation is directed to whom they want and avoid complications.

“Getting advice is a necessity. It is a false economy believing that paying for advice now is not worth it, as as the costs are far greater if things go wrong,” she said.