Binding Death Nominations
Binding death nominations enable members of superannuation funds that allow these nominations to have some degree of certainty regarding how their benefits will be distributed in the event of their death.
Under a binding death nomination you can state who is to receive your death benefit. You can either nominate one person to receive the entire benefit, or you can nominate several persons and the proportion each of them is to receive. Any person you nominate must either be your Legal Personal Representative or your dependant.
A binding death nomination is valid for three years from the date it was signed. A binding death nomination can be updated or cancelled at any time, by completing a new binding death nomination form.
A valid binding death nomination must:
- Nominate beneficiaries who are your spouse, child, dependant or interdependent, or legal personal representative;
- Be signed by you in the presence of two witnesses who are 18 years of age or older and not listed as a beneficiary/ies on the binding death nomination form; and
- Signed and dated on the same day for both you and your witnesses.
- The greatest appeal of Binding Death nominations is their potential to allow members to protect their death benefit from disputes.
- Binding nominations also have some significant estate planning potential. For example, there may be tax advantages in ensuring that your superannuation is paid to an infant child and other assets bequeathed to an adult child.
- The Commissioner has the discretion to reduce the amount of tax payable from the estate of a deceased fund member by that amount which is going to be paid to a ‘dependant’.
- If the payment is taken to be paid to a non-dependant, the benefit is taxed the same as an ordinary employment termination payment (ETP).
- Benefit is paid directly to the beneficiary, and is not processed via Probate.
- The main disadvantage is the inability of the trustee to rectify the situation where the member has not kept the nomination up to date. For example, the family situation may have been altered due to births, deaths, children becoming independent, re-marriage, etc. If the member is unlikely to keep the nomination up to date, a non-binding nomination allows the trustee to consider these factors in deciding how the death benefit should be paid and is more appropriate.
- The safeguards preventing the trustee from dealing with the benefit in an inappropriate manner are extremely rigorous. (As long as it is not a self-managed fund where the trustee may also be a beneficiary. Like the above example.)
- The taxation consequences of superannuation payments due to death can be complex. An improperly thought out binding nomination may have costly tax consequences. Detailed Legal and Taxation advice is recommended before determining a course of action.
Fund managers who accept binding nominations have information available on their website or contained within their product disclosure statements (PDS).
Alternatively, you may contact a fund manager to request a form. There are some standard elements but each form needs to be considered carefully. It is suggested that you discuss these with your adviser prior to completion. For example, where you have an allocated pension, completion of this form could result in a re-calculation of any tax-free income amount so care must be taken.