Is a binding nomination necessary for a Self Managed Superannuation Fund

Posted on 5th March 2015 by Christabelle Harris

Death is not something we think about, but inevitably it will happen to every one of us! Your Superannuation is likely to be one of your most valuable assets and you may not realise that your superannuation does not ordinarily form part of your estate and is therefore not covered by your Will.

We understand that estate planning can be daunting and so we work closely with trusted Law Firms to ensure your estate planning is tax effective as well as ensuring the outcome you want.

You have the option to provide the Trustee of your fund with a death benefit nomination. This is a notice requesting the payment of your superannuation entitlement be paid either to your estate or one of your specified dependants.

There are two types of nominations:

  • A binding nomination which is binding on the trustee – that is the trustee must comply with it;
  • A non-binding nomination – the trustee can exercise their discretion not to follow your nomination.

Please be aware that if there is no remaining trustee, your legal personal representative (the executor or administrator of the estate) acts as a trustee.

A valid binding nomination gives you certainty that your superannuation benefit will be paid to your nominated beneficiaries. If you have structured your Will to achieve certain outcomes, by having a binding nomination in place to your estate, your executor will pay out your superannuation benefits according to the terms of your Will. Alternatively a binding death benefit nomination can be used to direct your superannuation benefits to a beneficiary directly.

Unfortunately superannuation members die with no valid ‘nomination’ in place. If no binding nomination is made, the trustee or Legal personal representative (if there is no remaining Trustee), will use their discretion to distribute your superannuation entitlement. If the binding nomination form is invalid because you nominated an invalid beneficiary (e.g. your loving pet), then your death benefit will be paid using the remaining trustees’ discretionary powers.

For a nomination to be binding, you must nominate that your superannuation death benefit is to be paid to either your dependants or to your estate. Eligible persons are as follows:

  • Legal Spouse
  • De facto spouse including same sex partner
  • Any child including any adopted child, step-child or ex-nuptial child
  • Any person who was a dependant of the deceased just before the death
  • Any person you have an interdependency relationship with
  • Legal personal representative of your estate

Please be aware that an otherwise binding nomination is generally no longer binding when the nominated person is the deceased members spouse and there has been a divorce or permanent separation.

If you have a binding nomination in place, you should make sure you update your nomination to reflect any change in circumstances like marriage or the birth of a child.

You can provide a non-binding nomination which enables you to advise the trustees of your SMSF on how you wish your superannuation savings to be distributed upon your death.  However because it is non-binding, the final decision is still at the trustee’s discretion.

Your SMSF’s trust deed will detail what information a binding nomination requires in order to be valid. Some deeds require two witnesses (aged 18 years or over who are not nominated as a beneficiary) to sign the nomination document and it can also stipulate that the binding nomination has to be renewed every three years or it will lapse. SMSFs are able to offer non-lapsing or lapsing binding nominations, depending on the terms of the SMSF’s trust deed.

If you are unsure if you currently have a binding nomination in place or wish to discuss any of the information above, please contact Helen Cooper, the Senior Manager of our Self Managed Superannuation team.

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