A SMSF Will is a highly strategic and powerful legal document that forms part of the governing rules of an SMSF. It allows a member to dictate precisely how their superannuation death benefits are to be distributed upon their passing.
In contrast, a Binding Death Benefit Nomination (BDBN) is a traditional mechanism used by industry superannuation funds to direct the trustee to distribute death benefits in a specified manner.
Why is a SMSF Will Better than a BDBN?
Legally Stronger and More Secure
Unlike a BDBN, which can expire after three years (unless the deed allows for non-lapsing nominations), a properly structured SMSF Will remains in force indefinitely.
A BDBN may not be followed if it does not meet strict legal requirements, whereas a SMSF Will, if properly drafted into the fund’s governing rules, becomes part of the trust deed and is enforceable.
To date there has been no legal cases concerning SMSF Wills but more than 20, even High Court cases on BDBNs.
Greater Strategic Flexibility
A SMSF Will allows for specific asset allocations, such as passing direct property or shares to beneficiaries rather than forcing the sale of assets to provide a lump sum.
It enables members to structure their superannuation estate planning to provide income streams (pensions) to dependents, preserving wealth within the family.
BDBNs are generally locked down to passing specific percentages to the legal estate or death benefit dependant.
Protection Against Family Provision Claims
Superannuation benefits do not automatically form part of an estate, meaning they are not subject to challenges under family provision laws.
A BDBN directs benefits but does not provide legal structuring to protect them from creditors or disgruntled family members.
A SMSF Will can include a Death Benefits Trust, providing asset protection from divorce settlements, bankruptcy, and litigation.
Tax Efficiency and Bloodline Protection
Death Benefit trusts within a SMSF Will can allow tax-effective income streaming to beneficiaries (particularly minors, who receive adult tax rates).
This ensures that superannuation remains within the bloodline and does not pass to ex-spouses, in-laws, or unintended parties.
Complete Control Over Death Benefit Payments
Trustees of SMSFs have significant discretion when dealing with death benefits. A BDBN merely directs the trustee, whereas a SMSF Will becomes part of the fund’s legal framework.
This control means members can implement auto-reversionary pensions, conditional payments, and staged distributions, ensuring dependents are financially secure over time.
The Final Word: SMSF Will is the Clear Winner
A BDBN is outdated, restrictive, and prone to legal challenge.
A SMSF Will is a superior tool, providing:
✅ Legal certainty
✅ Strategic wealth distribution
✅ Tax advantages
✅ Bloodline protection
✅ Asset protection from legal claims
Final Tip: If you have an SMSF, ensure your trust deed allows for a SMSF Will. If not, it's time for an upgrade to a modern LightYear Docs SMSF trust deed. And if you would like legal support and help contact me grant@grantabbott.com
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