It is important to consider your superannuation entitlements as part of your estate plan especially when they do not form part of your estate. As superannuation entitlements can result in significant distributions to beneficiaries, it is crucial to ensure that they are paid in accordance with your wishes.
A non-binding nomination provides guidance to your superannuation fund about how to distribute your superannuation on your death but they are not obligated to follow it. The trustee of the superannuation fund (Trustee) has the final say on who receives your superannuation on your death and your entitlements may not end up being paid to your intended beneficiaries.
However, a binding death benefit nomination (Binding Nomination) allows you to ensure that your superannuation is paid to your intended beneficiaries. A superannuation fund is required to comply with a valid Binding Nomination.
Binding Nominations apply equally to retail superannuation funds and self-managed superannuation funds (SMSF).
We set out five things that everyone should know about Binding Nominations.
1. Not everyone can be nominated
You cannot name just anybody in a Binding Nomination. A Binding Nomination can only be made in favour of your legal personal representative (ie your estate), your spouse, your children or someone who has an interdependency relationship with you.
For the purposes of superannuation, an interdependency relationship is one where two people have a close personal relationship, live together and one or each of them provides both financial and domestic support and personal care.
2. Binding Nominations may expire
Generally speaking, Binding Nominations expire every three years, However, some superannuation funds have an option for a non-lapsing Binding Nomination, which means they do not expire and remain in place until they are revoked. You are free to revoke or change your lapsing or non-lapsing Binding Nomination at any time.
3. Binding Nominations need to be prepared carefully
In order for a Binding Nomination to be valid and to ensure that your wishes are carried out, Binding Nominations must be prepared very carefully. Generally, each nominee must be an eligible nominee as set out above, the total of the allocations for each nominee must add up to 100% and it must be witnessed properly.
Binding Nominations must be witnessed by two people over 18 years of age and the witnesses must not be named in the Binding Nomination or named in your will, if you nominate your legal personal representative.
Additionally, where a Binding Nomination is made for a SMSF, it is important to precisely follow the terms of the SMSF's trust deed to ensure its validity.
4. Binding Nominations must be sent to the trustee
To be effective, a Binding Nomination must be given to the Trustee. Unlike a will, you cannot simply make a Binding Nomination and forget about it. The Trustee must be aware of the Binding Nomination to be bound by it.
5. Binding Nominations affect more than just your superannuation
Superannuation can often include more than just the contributions made by your employer or you over your lifetime. Total and permanent disability insurance and life insurance policies held within a superannuation environment will be paid into your superannuation fund prior to it being paid to the ultimate beneficiary. In this case, the Binding Nomination will also apply to how those insurance proceeds are paid.
Conclusion
In summary, as payment of superannuation entitlements after your death can result in significant distributions to your beneficiaries, you should consider a Binding Nomination when preparing your overall estate plan to ensure your wishes are carried out.
For further information please contact:
Angela Harvey, Partner
Phone: +61 2 9233 5544
Email: axh@swaab.com.au
John Trinh, Associate
Phone: +61 2 9233 5544
Email: jxt@swaab.com.au
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
