It’s a common misconception that superannuation automatically transfers to the super fund owner’s estate upon their death.
This isn’t the case. Instead, it is up to the trustee of the fund to pay the death benefit in accordance with the fund’s governing rules and relevant law. This situation might be appropriate for you, for example, if you have a sole dependant. But, you may instead want to have more control over who receives what share of your benefit. To make this happen, you will need to make what is called a binding death benefit nomination.
Before a binding death benefit nomination is ‘valid’ there are several requirements that must be met, such as it must be given in writing to the trustee.
It can include different types of dependents, such as your spouse (including de facto, opposite and same-sex), children of any age (including adopted or ex-nuptial), or any person(s) that are financially dependent or in an interdependency relationship with you.
Interdependency relationships are close personal relationships between two people who live together, where one provides the financial and domestic support and cares for the other.
Aside from the dependents, the only non-dependents that can you can nominate as your beneficiaries are your estate or a legal personal representative. Unlike your dependents, these parties will pay 15% to 30% tax unless it is a life insurance policy held outside of super.
If you’re an adult aged 18 and over, any number of beneficiaries can be nominated and in whatever proportions you like, but they need to combine for the total (i.e.100%) amount of the estate.
It’s important to remember that the binding death benefit nomination is no longer valid if any of the beneficiaries you have nominated cease to be dependent or are no longer your legal personal representative. An example of this might be if your spouse has obtained a divorce. If this happens, revisions will need to be made to the nomination for its validity to be restored.
When the binding nomination is signed by the estate owner, it must be witnessed by two adults who cannot be among the beneficiaries. Each of the signatures must be signed and dated on the same day. Once it is received by the trustee, much like a Will, the nomination is then binding for three years from the date it was signed, unless the superannuation trust deed options allow it to be non-lapsing.
After this is completed you can have peace of mind knowing that the death benefit will be paid quickly to the beneficiaries you nominate and will not be held up by the trustee during the estate distribution. At any time, you have the option to change any of the nominated beneficiaries or the share they will receive.
Generally, after three years, the death benefit nomination becomes non-binding, which gives the trustee discretion to protect the interests of your beneficiaries if their circumstances have changed. An example of this might be if one of the beneficiaries is bankrupt, and the trustee, therefore, elects to avoid putting your super benefit into the hands of the beneficiary’s creditors.
Unlike the binding version, non-binding death benefit nominations don’t have an expiration date but are still worth keeping up-to-date such as when you marry, divorce or have children. The trustee is required by law to distribute to your financial dependents or interdependents where these are present.
Non-binding death benefit nominations still have the option for nominating the number and share for each of the dependents. Non-financial dependants, however, may be excluded, which is another argument for keeping the binding death benefit nomination valid if this is a decision that you want to control.
Despite the terminology, death benefit nominations are a relatively simple way of increasing the control of your estate. Thinking of it as an adjunct to your Will, it can provide you with a similar peace of mind.
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