Binding death benefit nominations

Some commonly asked questions about binding death benefit nominations

No. In order for a member of a superannuation fund to make a binding death benefit nomination, the rules of that fund must expressly permit it. Some superannuation funds do not allow this. In particular, a self-managed superannuation fund (SMSF) created prior to 1999 is unlikely to contain a rule permitting the creation of a binding death benefit nomination unless it has been appropriately updated since 1999.

Proper advice must be sought to determine whether a person’s industry fund or SMSF permits the creation of binding death benefit nominations. In the case of an SMSF, advice should also be sought about having the rules of the fund updated so as to permit the making of a binding death benefit nomination.

Consider the following hypothetical example.

Jack lives happily with his second wife, Jill, and their young child. Jack and Jill jointly own their family home, which will pass to Jill by survivorship upon Jack’s death. Jack’s only other significant asset is his death benefit under his self-managed superannuation fund.

Jack also has two teenage children from his first marriage.

Jack wants to leave his superannuation death benefit to the children of his first marriage, as the child of his marriage to Jill will be adequately provided for by assets that are owned by Jill.

By creating a binding death benefit nomination in favour of the children of his first marriage, Jack can ensure that adequate provision is made for these children in the event of his death. Otherwise a share of his death benefits may go to the child in his current marriage, which is not his intention.

It is useful to keep in mind that superannuation policies and the related death benefits attached to them (or separately) can be particularly important estate planning mechanisms for blended families, largely because of the tax laws governing death benefit payments, but also to ensure you provide appropriately for your blended family (generally your spouse and your children from a previous relationship).

Yes. Circumstances can change and your instructions may need to be explicit to reflect this. The wording of a binding death benefit nomination must be specific and give consideration to different eventualities. Regularly reviewing your binding death benefit nomination is advisable, rather than creating it and then forgetting all about it.

Consider the following examples:

  • Leaving your super entitlements to your “spouse” – if you had split up with your former spouse by marriage and were living with a de facto spouse at the time you died, there may be problems determining which spouse receives your death benefits.
  • Leaving a 25% share to each of your four children – in the event that one child predeceases you, what then becomes of the 25% share that would have gone to them?

A Stacks lawyer will be able to help you to consider different eventualities that may affect your estate planning goals.

Superannuation law defines “dependency” and you cannot leave your super entitlements to a non-dependant (note that spouses and children, whether minor or adult, are counted as dependants). Parents, siblings, nieces, nephews and friends are not considered to be dependants. This means that upon your death, the superannuation fund cannot pay the death benefit to such a nominated person, even if it is a binding death benefit nomination.

Even if your superannuation fund accepted the nomination and you thought that the issue was sorted out, if you nominated someone who is a non-dependant, they will not receive your death benefits as you wished.

Therefore, if you want to pay your superannuation fund to a non-dependant, you must pay the fund to your estate and then provide for the gift under your will. This is an oft-neglected process.

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