The difference between lapsing and non-lapsing superannuation nominations is that a lapsing nomination is generally valid for 3 years; whereas a non-lapsing nomination does not expire.
Superannuation death benefit nominations are legal directives to a trustee of a superannuation fund informing the trustee of how a member would like their superannuation benefits paid in the event the member was to pass away, provided the beneficiary/ies are eligible to receive the benefits.
Death benefit nominations play a similar role to your Will.
|Type of Assets||Document Detailing How & Who It Is Paid To|
|Superannuation/Pension Assets||Super Death Benefit Nomination|
A superannuation death benefit nomination can be binding or non-binding.
A non-binding nomination has no expiry date. A binding nomination can be lapsing (valid for 3 years) or non-lapsing (no expiry date).
Non-Binding Superannuation Death Benefit Nomination
A non-binding superannuation nomination allows the member to inform the trustee of a superannuation fund of who they would like their superannuation balance to be paid to in the event of the members’ death.
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Being non-binding means the trustee retains ultimate discretion as to who the benefits will be paid to, after considering the members’ relationships at the time of death.
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The advantage of non-binding nominations is that the trustee isn’t forced to pay benefits to the beneficiary on the death benefit nomination form, which can be useful if relationships have changed between the time the form was completed and the time of death.
The disadvantage of a non-binding nomination is that it provides no certainty as to who a members’ benefits will be paid to prior to the member passing away.
Neither a binding or non-binding nomination will affect a reversionary pension.
Reversionary pension income streams are automatically transferred to the beneficiary regardless of any superannuation nominations or trustee discretion.
Binding Superannuation Death Benefit Nomination
The definition of a binding superannuation nomination is a nomination that allows the member to inform the trustee of who the Trustee must pay their superannuation balance to in the event of the members’ death.
Being binding, the trustee has no discretion as to who the benefits will be paid to. The trustee must pay the death benefits in accordance with the binding death benefit nomination form.
The advantage of binding death benefit nominations is that it provides the member with certainty as to who will receive their super balance should they pass away.
This disadvantage of binding nominations is that relationships may change between when the nomination is submitted to the trustee and when the member passes away. If the member forgets to update the trustee with changes in relationships, it may result in their benefits being paid to an unintended person, as the trustee must abide by the nomination and is unable to use any discretion.
Lapsing Binding Death Benefit Nomination
An ordinary death benefit nomination is valid for three years from the date of the document, at which point it will lapse. The reason for the limited time frame validity of the nomination is to protect people who put in place a binding nomination, but have a change in relationship and forget to update it before passing away.
Being binding, the trustee cannot pay the member’s benefits to anyone else, even if everyone involved knows that the nominated beneficiary wouldn’t have been the deceased’s preferred choice at the time involved.
Non-Lapsing Binding Death Benefit Nomination
A non-lapsing binding death benefit has no expiry date and will remain in place indefinitely until replaced by a new binding or non-binding death benefit nomination.
Death Benefit Nomination Form
Retail and industry superannuation funds will have a standard form to complete to put in place both lapsing and non-lapsing binding death benefit nominations, as well as non-binding nomination forms.
It is important to keep in mind that not all superannuation funds offer binding nominations (lapsing or non-lapsing).
You should contact your superannuation fund to see what type of nominations they offer, especially if certainty of estate planning is important to you.
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SMSF Binding Death Benefit Nomination Form Template
SMSF lapsing and non-lapsing binding death benefit nomination form templates, as well as non-binding death benefit nomination templates, are available from around the web; however, given the legal importance of such a document, together with the ever-changing SMSF legislative and regulatory environment; having a specialist estate planning solicitor to draft SMSF nominations is highly recommended.
Difference Between Lapsing and Non-Lapsing
Hopefully this article has given you a good understanding of the difference between lapsing and non-lapsing binding death benefit nominations. Feel free to post any questions below.