What is a Binding Death Nomination?

You will have heard of superannuation and most likely have a superannuation account. But did you know that your superannuation does not automatically form part of your estate once you pass away? What does this mean?

What happens to your assets once you pass away?

 When you pass away, depending on whether you left a legally valid Will or not, your assets are generally given to family, or sold and the money distributed to your beneficiaries or family.

If you leave a Will, you decide how, or to whom, you want your assets to be distributed. Whether they are to be given to family members as gifts or sold and the proceeds to be divided amongst your family members or chosen beneficiaries, the choice is yours.

However, if you don’t leave a Will, generally your assets will be sold and distributed to family members in accordance with the laws of intestacy. In other words, you don’t really get a say, the law decides who gets your money or assets.

And then there is your super! Whether you left a Will or not, your super is dealt with separately and is not dealt with as part of your estate with your other assets unless it is paid to your estate.

 Why does super not form part of your estate like your other assets?

Unlike your other assets such as your house or bank accounts, your superannuation is not actually held by you in your own name. Your superannuation is held in trust on your behalf. Whilst the funds are yours, they are not held by you directly.

In order to give assets in your Will, the assets must be held in your name. As superannuation is not held in your name, this cannot be given in your Will. Stating in your Will how you wish for your superannuation to be distributed may override this if your superannuation fund is paid to your estate. Read on to find out how.

If super is not an asset under my Will, how is my superannuation distributed once I pass away?

 As your superannuation is held in trust, the trustee of your superannuation fund holds the decision-making power to decide to whom your superannuation is paid. But before you panic, they cannot just pay it to whoever they like! There are laws that guide to whom the trustee of superannuation funds can pay your superannuation. This is generally family members, with careful consideration to any family members that may be financially dependent upon you.

They may also elect to pay the funds to your estate. This would mean that your super funds would then form part of your residuary estate and distributed to the beneficiaries of your residuary estate in your Will, or if your Will quarantines those funds, as to how this is stated in your Will. In the event you have not left a Will, the funds will be distributed to the beneficiaries of your estate in accordance with the laws of intestacy. This may be different to whom you wish for your superannuation to be paid to.

Is there anything I can do to ensure that my superannuation gets paid to whom I wish it to be paid to?

Luckily there is. It is called a Binding or Non-Lapsing Death Nomination. A Binding Death Nomination tells the trustee of your super fund whom to pay your superannuation upon your death. Provided the Binding Death Nomination is completed correctly and in the exact format as required by your superannuation fund and given to the trustee of the superannuation fund, as the name suggests, the trustee of your superannuation funds is then bound by this nomination and must pay your superannuation funds in accordance with who you have nominated it to be paid to. Phew!

My superannuation fund has non-binding death nominations. Is this the same as a binding death nomination?

Unfortunately, as the names suggests, a non-binding death nomination is not binding on the trustee of the super fund. Therefore, even if you set up non-binding death nominations within your super fund, the trustee of the fund still has the power to override your nominations and pay your superannuation to people other than who you have nominated.

Whilst non-binding death benefit nominations can be very quickly and easily set up online in your superannuation portal, it is important to remember that this does not necessarily mean that this is to whom your super will be paid.

What do I need to consider when making a Binding Death Nomination?

When considering a binding death nomination, keep in mind that the death benefits must be paid to someone deemed to be a dependant or your legal personal representative. Another thing to consider is that even if you do nominate someone to receive your superannuation, there are lapsing and non-lapsing death nominations.

A lapsing death nomination as the name suggests, can lapse. This means that after a certain timeframe the nomination is then no longer-binding and reverts to a non-binding death nomination.

A non-lapsing binding death nomination does not lapse, and remains binding until such time as you revoke it.

Therefore, if you have done any kind of death nomination with your superfund, it is crucial to check with the trustee of your superfund whether it is binding, and whether it is lapsing and therefore has an expiry date. The good news is that a lapsing binding death nomination can be renewed again.

It is also important to note that not all super funds offer the option of creating a binding death nomination. It is important to check with your super fund that they do accept binding death nominations. If your super fund does not accept them and you wish for your super to be distributed to certain beneficiaries, consideration may be given to changing the super fund to one that does accept binding death nominations.

I have a self-managed super fund, can I still do a Binding Death nomination?

If you have a self-managed super fund, you may still be able to do Binding Death Nominations provided that the super fund trust deed states that you can. The super fund trust deed should outline the requirements for the death nominations to be accepted and valid.

Generally, the nominations must also be made to family or children, as required by death nominations in standard super funds.

I have a self-managed super fund, but the super fund trust deed does not state that Binding Death Nominations can be made. What can I do?

 If you do wish to make binding death nominations for your self-managed super fund and the super fund trust deed does not state whether they can be made or not, you can change the super fund trust deed by way of a trust variation to allow for binding death nominations to be made and accepted by the trustee. This would then mean that you could make legally valid death nominations directing your share of the super fund to be paid to whoever you nominate. This can also just be the residual beneficiaries of your estate.

Why do I need to make a Binding Death Nomination?

Having a Binding Death Nomination in place for your super provides extra protection to ensure that your super goes to who you want it to go to. Everyone’s situation and circumstances are different, so there are different reasons why someone would want control over being able to pay their super to certain people.

Often people with blended families wish to separate their super from the rest of their estate and may wish for their biological children to receive their super rather than being paid to their estate and distributed amongst their children and stepchildren.

Other common reasons can be to ensure that the Trustee of the super fund does not pay the funds to someone who claims to be more financial dependent on you than others or to protect the funds from the rest of your estate to try and minimise claims against your estate.

If you have beneficiaries who you wish to attain a certain age before they are entitled to receive their share of your estate, ensuring your super funds are paid to your estate allows for the funds to be held in trust until the beneficiary is eligible to receive their share, rather than being paid their share of your super fund at an age that you do not wish for them to receive it.

It also means that the Trustee of your super fund can process payment of your super fund to your nominated beneficiaries quickly, as opposed to having to identify everyone that is eligible, identify their financial needs and make a decision as to who they will pay it to. This process can cause delay.

One last consideration is the taxation consequences of your death nominations. In some circumstances it may be more tax effective to have a Binding or Non-Lapsing Death nomination in place. It is best to obtain advice from your financial advisor or SMSF advisor about the taxation consequences of any death nominations before making them.

Final Thoughts

If you have a Will or are looking to make one, ensure that consideration is given to your super fund and whether a Binding Death Nomination is right for you. At Wollerman Shacklock Lawyers, we do not just draft a Will for you, we go through a thorough Estate Planning Health Check where we discuss things such as your super and the best way to deal with this in accordance for your wishes and intentions.

For more information on binding death nominations or if you need assistance, please contact us on 9707 1155 or admin@wslegal.com.au.