Introduction
Superannuation is an important part of any Australian’s financial planning. It is a tax-effective way of saving for retirement, and the funds can be accessed once you reach a certain age. For many people, superannuation is their most significant asset.
However, it is also crucial to have a plan in place for what happens to your superannuation when you pass away. The payment of superannuation death benefits is determined by the rules of the superannuation fund which are contained in the funds trust deed, not by your will.
While some funds do not allow binding death benefit nominations, they are an option in most and they are worth considering.
In this blog post, we’ll be answering some common questions about superannuation binding death nominations in Queensland, Australia.
Further advice will also be available from your superannuation fund, financial adviser, and your accountant.
What is a Superannuation Binding Death Benefit Nomination?
A superannuation binding death nomination is a legal document that outlines who should receive your superannuation benefits when you pass away. Provided it is completed correctly, it is a way of ensuring that your wishes are carried out and that your loved ones are taken care of.
Often referred to as a binding death nomination, this nomination is different from a non binding death benefit nomination in that it legally requires the trustee of your superannuation fund to distribute your benefits in accordance with your wishes.
You are not required to make a death benefit nomination; you can leave it to the superannuation fund trustee to decide.
A binding nomination does not control how a reversionary pension is paid. Neither a will nor a binding nomination is relevant to determining who receives the remaining pension balance when the original pension recipient passes away. A reversionary beneficiary is nominated separately for the relevant income stream.
Rules for Binding Death Benefit Nominations
There are several rules that govern binding death nominations, here are some key considerations.
Availability Depends on the Trust Deed
Firstly, it is important to note that not all superannuation funds allow for binding death nominations, so it is essential to check with your super fund before creating one.
Valid Nominations
To create a valid nomination, you must be over 18 years of age and have the mental capacity to do so.
You must also ensure that the nomination is witnessed and signed by two witnesses who are over the age of 18, are present when the document is signed, and are not listed as beneficiaries on the nomination.
Beneficiaries
Superannuation industry legislation and taxation legislation affect who can receive a benefit and the outcomes.
Dependent Beneficiaries
Beneficiaries are limited to dependents of the super fund member, or their estate. Dependents include their spouse or de facto spouse and children, including a child under 25 who lives at home and is continuing their education, as they are financially dependent.
A dependent may also be someone who had a close personal relationship with the member of the fund, someone with whom they lived and shared personal, financial, and domestic support. This is usually referred to as an interdependency relationship.
Where the benefit is paid to a ‘death benefit dependant’ there is no tax payable on the benefit.
Non-Dependent Beneficiaries
Where there are no dependents, then the death benefit is generally provided to the estate which is managed by the member’s legal personal representative, the executor, or Public Trustee, for example.
It’s important to note that where the super death benefit is being paid to non-dependents, usually via the estate, then tax would be payable. For example, the member’s nominated beneficiary is an adult child over 25.
The super fund will calculate and deduct the tax before paying a non-death benefit dependent directly, while the executor will be responsible for this, if the funds are paid into the estate.
Binding Death Benefit Nomination vs a Will
Your superannuation requires careful consideration as part of your estate plan.
Your will alone cannot be relied on to control the distribution of a death benefit, which means your chosen beneficiaries may not receive the financial support you intended.
What are the Advantages of a Binding Death Benefit Nomination?
One of the key benefits of making a binding death nomination is that it provides certainty and simplifies the distribution of superannuation benefits.
By outlining your wishes, you can ensure that your loved ones receive the benefits they are entitled to without the need for lengthy court battles. It also gives you peace of mind knowing that your assets are being distributed in accordance with your wishes.
What are the Disadvantages of a Binding Death Benefit Nomination?
The downside of a binding nomination is that it needs to be renewed every three years to stay valid. Failing to renew it runs the risk of the nomination being challenged, which we will discuss in the next section.
Additionally, failing to update your nomination when your circumstances change, for example after separation or divorce, means that death benefits will still be directed to the person that was nominated, the trustee cannot make a judgement call.
Can a Binding Death Benefit Nomination be Challenged?
Yes, a binding death benefit nomination can be challenged.
For example, if it is found that the nomination was not valid, it was made under duress or if there was evidence that the person making the nomination did not have the mental capacity to do so. There is also the risk of the nomination being challenged if it is deemed to be unfair or unreasonable.
Do Binding Death Benefit Nominations Expire?
It is important to note that for industry and public superannuation funds, a binding death benefit nomination will expire three years from its date of creation, so it is important to review and update it regularly. If your circumstances change you should also review your nomination, as you should with other legal instruments such as your will or a binding financial agreement.
The situation is a little different for a self-managed superannuation fund. It has been accepted for some time that a binding death nomination may still be in effect after three years, but this is a grey area with the Australian Tax Office (ATO) providing advice that the court may not follow.
As a nomination may be challenged, it is safer to draft or update the SMSF Deed to allow for binding death benefit nominations that expire every three years or draft it to include a non-lapsing binding death benefit nomination.
Are there other death benefit nomination options?
Yes, there are other options available when it comes to what happens to your superannuation when you pass away, depending on the governing rules of the fund.
If you do nothing, you are leaving it to the trustee of your superannuation fund to decide how to distribute the death benefits.
You might elect to use a non-binding nomination, which provides the superannuation fund trustee with optional guidance.
You may be able to use a non-lapsing nomination.
Don’t forget that when circumstances change you may need to consider revising an existing nomination.
Conclusion
In conclusion, a superannuation binding death benefit nomination is an essential aspect of financial planning in Queensland, Australia. It is a way of ensuring that your wishes are carried out and simplifying the distribution of your superannuation benefits.
However, we recommend you seek personal financial advice and legal advice, especially when it comes to a self managed superannuation fund, before creating a binding death nomination to ensure that it is valid and protects your interests.
If you have any questions or would like assistance with your superannuation planning, do not hesitate to contact our legal practice.
Our team of experienced lawyers will guide you through the process and help you make informed decisions about your superannuation.