A lapsing binding death benefit nomination is a super nomination that has an expiry date.
There are various death benefit nominations you can make.
Generally, a non-binding nomination will be non-lapsing.
A binding nomination can be lapsing or non-lapsing.
The type of death benefit nomination you make depends on your needs and what your super fund or SMSF offers.
Some super funds offer all types of death benefit nominations and some limit the types you can make.
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A super fund’s trust deed will outline the types of nominations available to members.
A trust deed is essentially the rules of a particular super fund.
A trust deed can reduce the flexibility of superannuation legislation, but cannot extend the super laws.
Which Death Benefit Nomination Should I Choose?
The best type of death benefit nomination for you will depend on your situation and your wishes.
There are advantages and disadvantages of each.
Listed below are details of each type of death benefit nomination, including some pros and cons of each.
Death benefit nominations can apply to superannuation accumulation accounts, pension accounts (excluding reversionary) and life insurance proceeds.
Non-Binding Death Benefit Nomination
A non-binding death benefit nomination is the most common of all death benefit nominations.
All super funds will offer non-binding nominations.
A non-binding nomination allows you to notify the trustee of your super fund with who you would like to receive your super balance in the event of your death.
Importantly, because the nomination is non-binding, the trustee retains discretion as to who will receive your balance at the time of your death.
In saying this, the trustee must make the payment to a person who is a dependant of yours, as defined by superannuation legislation.
Specifically, a dependant of yours includes a spouse (including de facto), a child, and a person who you were in an interdependency relationship with at the time of death.
Non-binding death benefit nominations will typically be non-lapsing (i.e. no expiry date).
The benefit of a non-binding nomination is that it provides flexibility for change in non-binding beneficiaries.
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For example, if you submit a non-binding nomination and your situation changes between when you submit it and when you pass away, the trustee of your super fund can use discretion to make death benefit payments based on your relationships at the time of your death, should you forget to update it in the meantime.
The downside of a non-binding nomination is that it does not provide you with certainty as to who will benefit when you pass away, due to ultimate discretion resting with the trustee.
Non-binding nominations can be challenged.
Binding Death Benefit Nomination
A binding death benefit nomination is not offered by all super funds.
You can have a lapsing binding death benefit nomination or a non-lapsing.
A lapsing binding death benefit nomination usually has an expiry of three years.
Your super fund can inform you of the types of death benefit nominations they allow you to make.
A binding nomination commits the trustee to paying your death benefits in accordance with your nomination at the time of your death.
The trustee has no discretion in this instance, even if your relationships have changed in the meantime.
Due to the lack of discretion, a binding nomination risks your super being paid to someone you had not intended, which can occur if your situation changes between when you submitted it and the time of your death.
The trustee can only change who the payment is made to if the person you have nominated is not classified as a beneficiary, as defined by superannuation legislation.
Non-lapsing and lapsing binding death benefit nominations can be challenged.
How Long Does a Binding Death Benefit Nomination Last?
A standard lapsing binding death benefit nomination generally has an expiry date of three years from the date it is signed.
After three years, you will need to submit a new binding nomination.
The reason why binding nominations have an expiry is because they are binding on the trustee.
Therefore, the expiry is a protection for you in case you forget that you made the nomination and your situation were to change.
By updating the nomination every three years, there is more chance it will be consistent with your wishes at the time of your death.
A non-lapsing binding nomination lasts for your lifetime.
There is no need to update a non-lapsing binding nomination; however, you should review it regularly.
If you change super funds, you will need to submit a new binding nomination with your new super fund.
Binding nominations submitted with one super fund will not carry across to any other super funds you may have.
Does a Binding Death Benefit Nomination Override a Will?
Yes, a Will may have reference to your superannuation balance, but a superannuation death benefit nomination will be the document that determines how your super death benefits are paid.
A Will might only be referred to if no super nomination is made, or the trustee needs to refer to the Will to help make a discretionary payment under a non-binding nomination.
Nominating a beneficiary for your super under your Will will generally not decide who receives your super upon death.
Death Benefit Nomination Form
You should contact your superannuation fund, or the trustee of your SMSF for a death benefit nomination form.
The instructions on how to complete the form will be provided by the trustee.
You are required to complete a form for both binding and non-binding nominations.
Death Benefit Nomination Tax Implications
You should consider death benefit tax implications when submitting a binding or non-binding death benefit nomination.
Tax implications are an important part of your overall estate plan.
You can optimise the payment of personal assets and superannuation to minimise tax to your beneficiaries.
The tax implications may depend on who the payment is made to.
Death benefits paid to a spouse (including de facto) or child under 18 are usually tax free.
Whether your super is paid as a lump sum or income stream may also affect the tax implications.
Any life insurance proceeds may incur tax also.
This calculator can help determine death benefits tax.
Death benefit nominations are not relevant for reversionary pensions.
A reversionary pension is a pension where a beneficiary of the pension is nominated at the commencement of the pension.
Upon death of the original pension member, the pension will simply continue to be paid to and owned by the reversionary beneficiary.
A reversionary pension is not affected by the Will or any death benefit nominations.