Why you need to have a binding death benefit nomination
In a Will your personal assets will form part of your estate and will be distributed according to your wishes.
However, your superannuation and any death benefit do not generally form part of your Estate, and therefore you need to do a Binding Death Benefit Nomination (BDBN) to ensure your Superannuation Balance and Death Benefit or related payments are paid in accordance to your wishes.
In the event you do not have a valid BDBN in place, the Superannuation Trustee (the overseers of the Superannuation Fund or Life Policy) has to make a decision about where the funds are to be distributed to.
Under Australian Superannuation Law, a death benefit may only be paid to either or both:
• the dependant(s) of the deceased member, as defined in the Superannuation Industry (Supervision) Act 1993 (“the SIS Act”), and/or
• the deceased member's Legal Personal Representative (Executor or Administrator) of his/her estate.
The term "dependant" is defined in s10 of the SIS Act and includes:
• the deceased person's spouse (includes a de facto spouse but not a former spouse);
• the deceased person's child of any age (includes an adopted child, step-child or ex-nuptial child);
• any person with whom the deceased person had an interdependency relationship just before they died; and
• any person who was financially dependent on the deceased just before they died (i.e. the common law meaning of dependant).
If, after reasonable enquiry, no dependant or legal personal representative can be found, the Trustee may pay the benefits to another person who must be an individual as determined by the Trustee.
Therefore, if you want it to go to one person, or even several people, in particular, then it is essential to make sure you go through the necessary steps to put your BDBN into place.
What’s the difference between a binding and non-binding nomination?
A binding nomination specifies who the death benefit from the Superannuation or Life Insurance fund should be paid to. As the name suggests this is a legally enforceable document and must be completed properly to be valid and accepted by the Trustee.
A non-binding nomination gives the Trustee the discretion to choose who will receive the benefit and how much they will receive. In a non-binding nomination, the Trustee will take into account the wishes of the super fund member, but ultimately, they have the control and make the choice to use it if the circumstances require. For e.g. where only one adult child’s name has been stated in the non-binding nomination, but there are in fact 4 adult children of the deceased. In this instance, the Trustee made the payment to the Legal Personal Representative, to be distributed through the Estate.
How long does a binding death benefit nomination last?
Generally speaking, a binding death benefit nomination expires after 3 years from the date of signing.
What are Non-lapsing binding death benefit nominations?
Some Super funds have a non-lapsing binding death benefit nomination available, so that your nomination does not expire.
We recommend you revisit your BDBN every few years as life and your circumstances change. This will ensure your wishes are always accurately reflected.
Does a Self-Managed Super Fund (SMSF) require a binding death nomination?
If you are part of a SMSF and you do not have a BDBN in place, then the SMSF Trustee can distribute the benefit at their discretion. The only requirement is that the distribution of the benefit is fair and reasonable. Therefore, by having a binding death benefit nomination in place it will ensure your super is paid according to your wishes.
Are there any benefits in nominating someone as a beneficiary?
There can be benefits to your beneficiary’s when it comes time to them being paid. For example, if the person is a financial dependant of the deceased member, then they can receive the monies tax-free, and in certain circumstances there is also the possibility of a Medicare Levy not being required to be paid on it as well.
Why should you obtain legal advice?
It's important to get legal advice for your situation to ensure that your BDBN is executed correctly and in accordance with your wishes. To ensure your BDBN and your Self Managed Super Fund BDBN is executed correctly we recommend speaking to one of our experienced Solicitors, please reach out for a 15 minute confidential discussion about your situation.
Disclaimer: The content presented in this article is offered for informational purposes and should not be construed as legal advice or a substitute for professional guidance. If you have questions or require legal assistance, we strongly recommend consulting with a Solicitor to address your individual circumstances.