Most people would be surprised to know that their superannuation does not automatically form part of their estate.
A Death Benefit Nomination is a tool utilised to distribute superannuation savings to a beneficiary. The Australian legal system separates an individual's personal assets from their superannuation. Unlike a deceased's bank accounts or property, which form part of their estate and will be distributed in accordance with their Will, superannuation savings can be directed straight to a beneficiary and bypass their estate.
Who can I Nominate?
There are restrictions on who you can nominate as your Death Benefit nominee. Valid nominations can be made to either a Legal Personal Representative, whereby the death benefit is paid to the estate, or to a dependant. The definition of 'dependant' varies from fund to fund and also by law, so it is important to ensure your nominee(s) fall within the fund's definition.
Types of Death Benefit Nominations
Death Benefit Nominations come in two forms; binding and non-binding. As the name would suggest, a Binding Death Benefit Nomination binds the Trustee of the superannuation fund to pay the death benefit to the nominated beneficiaries. Alternatively, where a Non-Binding Death Benefit Nomination is used, the Trustee may exercise their discretion to follow the deceased person's wishes or direct the death benefit to another person, or the deceased person's estate.
On that basis alone, it is normally recommended that any nomination you make is binding in nature, to ensure that there is no doubt about the payment of your death benefit. However, you should seek advice on whether this is suitable for your circumstances.
The Superannuation Industry (Supervision) Regulations 1994 provide a 3 year restriction on the lifespan of a Binding Death Benefit Nomination. Once the period of three years has lapsed, the nomination becomes non-binding.
Some superannuation funds, however, permit their members to make non-lapsing Binding Death Benefit Nominations. Similarly, Binding Death Benefit Nominations made in a Self-Managed Superannuation Fund ("SMSF") are deemed to be perpetually binding until such time as they are revoked, provided that the SMSF Trust Deed does not provide a restriction on the lifespan of the nomination.
For more information on death benefit nominations, refer to the Australian Law Reform Commission.
If you would like more information on Self Managed Super Funds, see our previous articles:
How can Sharrock Pitman Legal assist?
If you would like to speak with one of our team members about your Death Benefit Nomination, or require a Death Benefit Nomination for your SMSF, please feel free to call Mitchell Zadow on (03) 8561 3318, or alternatively, fill in the form below.
The information contained in this article is intended to be of a general nature only and should not be relied upon as legal advice. Any legal matters should be discussed specifically with one of our lawyers.
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Mitchell is the Managing Principal of our law practice.
He is an Accredited Specialist in Commercial Law (accredited by the Law Institute of Victoria). He also deals with areas of Employment Law, Wills & Estate Planning and Probate. For further information, contact Mitchell on his direct line (03) 8561 3318.