When a Binding Death Benefit Nomination is not Binding

When a Binding Death Benefit Nomination is not Binding
Posted on 10 Feb 2021

When mapping out your estate plan and nominating beneficiaries, it is important to remember that superannuation does not form part of a deceased estate upon the death of the member, and will not be distributed in accordance with the member’s Will as a matter of course. This is the case even with a self-managed superannuation fund (SMSF).

To ensure your superannuation passes to your preferred beneficiary, you must therefore properly (and carefully) utilise the Binding Death Benefit Nomination. For regulated superannuation funds, the process is more straightforward and you may have simply checked a box, and feel secure that the funds will be directed accordingly. However, for an SMSF greater attention needs to be given.

The governing rules of a SMSF in Australia may permit a member to direct the trustee of the fund, by way of a Binding Death Benefit Nomination, to pay any death benefits to a dependent of the member or the legal personal representative (executor) of the member in the event of the member’s death.

A Binding Death Benefit Nomination must comply with the Superannuation Industry (Supervision) Regulations 1994, in order for it to be binding on the trustee. The trustee of the fund does not need to comply with any non-binding death benefit nomination and they may disregard it.

Unless otherwise permitted by the SMSF’s governing rules, a Binding Death Benefit Nomination only has effect for 3 years after the date it was signed by the member (or a shorter period if prescribed by those governing rules). After that 3-year period has lapsed, the Binding Death Benefit Nomination ceases to have effect and becomes non-binding.

A member can, however, within that 3-year period, amend or confirm the Binding Death Benefit Nomination, which will re-start the 3-year period. The member may also revoke a Binding Death Benefit Nomination if it no longer suits their estate plan.

As a precaution, members of any SMSF should review their Binding Death Benefit Nominations every 3 years to ensure it remains up-to-date and binding on the trustee.

If a member does not make a Binding Death Benefit Nomination, the trustee of the fund will exercise its discretion to pay the death benefit to the member’s legal personal representative (to be distributed in accordance with the member’s Will or the laws of intestacy) or the spouse, child or dependent of the member.

For further information or a review of your estate planning, please contact the team at Cronin Miller Litigation.

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