Death benefit nominations for your SMSF
Any bank debts or creditors that you leave behind when you pass on cannot access your superannuation with this death benefit nomination in place. We have a few spouses that have benefitted by receiving the full superannuation of their deceased partner when creditors have been hovering for non-payment of debts. These extra monies have obviously been of great benefit for their future lives and families without having to pass this money onto creditors and the banks. This is important we believe for all our clients to think over.
We are happy to sit down with you and discuss further if you wish. We are exceptionally happy that we were there and able to provide advice to our clients that unfortunately have lost a loved one but not all their hard earned superannuation. If need be we can then refer you to financial planner to ensure that these nomination forms are put in place correctly.
A death benefit nomination is a written direction to your superannuation fund that, in the event of your death, your superannuation is paid to the dependent of your choice directly. The money inside your superannuation fund is not transferred to your estate for the executor to distribute to your beneficiaries. It is important to make sure any fund balance left over, after one’s time is up, goes to the intended beneficiaries of your estate.
One misconception that many people have is that their normal “last will and testament” will safely distribute their estate, including money tied up in their superannuation fund; but the payment of benefits from a superannuation fund upon the death of a member is done in accordance with the governing rules of the fund, not according to the terms of a will. This is why it is important to direct how benefits are to be paid upon your death – the death benefit nomination is the way to make sure this is done.
Nominations come in two flavours
The nomination can be binding – that is, it leaves no discretion to the trustee about how or to whom benefits are paid – or non-binding. The latter notifies the trustee of the member’s preferred beneficiaries and the division of benefits, but leaves the final decision to the trustee (unless the governing rules of the fund provide otherwise).
A fund without a valid binding nomination will end up having benefits paid out according to the trust deed, if such provisions are included there, or see the trustee being guided, as appropriate, by any non-binding nomination, the late member’s will or just simply exercising their own discretion.
The reasons some superannuation fund members may opt for a non-binding nomination can include that they may not have made their mind up about dividing up assets after they’ve gone, or because they know that superannuation law dictates that benefits can only be directed to dependants or legal personal representatives anyway, or it can often be because as fellow SMSF members are family, the member assumes their benefits will end up in appropriate hands.
Also, leaving some discretion to the trustee allows for changed circumstances to be taken into account, particularly where a nomination was made some time ago and relationships or dependencies have changed in the intervening period. The trustee can also consider the tax implications of any particular benefit distribution when the time comes.
A binding death benefit nomination, as noted above, leaves no discretion to the trustee. Benefits must be paid out in strict accordance to the nomination, which can be used to ensure no disputes arise between feuding relatives (or to exclude wayward children or estranged children’s spouses).
Also a binding nomination made for a superannuation fund does not have to be renewed or reconfirmed every three years (which is a legal requirement for other types of super funds). They are sometimes referred to as “non-lapsing binding nominations”. However it has become accepted wisdom among superannuation industry circles that a superannuation fund member/trustee should consider refreshing a death benefit nomination every few years anyway, whether it is binding or non-binding – just to be certain that their wishes are satisfied and for further peace of mind, but also so that no future beneficiaries will have any reason to dispute or call into question the late member’s intentions.
Making a death benefit nomination binding potentially adds another ongoing requirement for members – to make sure the nomination is updated and continues to reflect your wishes should there be a change in family circumstances. Such changes can include the death of a dependant, the birth of a new dependant or the end of a relationship. Otherwise a binding nomination for a superannuation fund will remain in force until the member changes or revokes it.
Changing a death benefit nomination can be done at any time by completing a new nomination expressing the changed or new intentions of the member, and giving this to the trustee. The written notice needs to be signed and dated in the presence of two witnesses who are at least age 18, neither of whom is a nominee.
Ask us for help if these death benefit nominations are on your horizon.
Please be mindful that this is offered as general advice only and not offered particular to your situation, please seek expert advice on your individual situation before commencing any further action.
19 May 2016