Non-Binding Death Benefit Nomination

A Non-Binding Death Benefit Nomination is a declaration made to the trustee of your super fund.

A superannuation fund trustee is responsible for the management of your superannuation savings on your behalf.

You are able to submit a nomination to the trustee detailing who you would like your super to be paid to in the event of your death.

One such nomination is a Non-Binding Death Benefit Nomination.

Non-Binding Death Benefit Nominations can usually be made to any type of super fund, including a retail fund, industry fund or SMSF.
 

What is a Non-Binding Death Benefit Nomination?

 
A Non-Binding Death Benefit Nomination allows to to nominate who will receive your remaining super balance when you pass away.

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As the name suggests, this type of nomination is not binding on the trustee.

Therefore, in the event that you were to pass away, the trustee would consider your nomination, yet would retain ultimate discretion as to who would receive your super balance.

Any life insurance proceeds paid into your account as a result of your death would also form part of your death benefit.
 

Advantages of a Non-Binding Death Benefit Nomination

 
The benefit of a non-binding nomination is that the trustee can consider your situation and relationships at the time of your death to determine who your benefits should be paid to.

Importantly, they can consider your wishes provided in the nomination, but are not bound to them.

This is particularly useful if your situation or relationships have changed between when you made the nomination and your death, but you had not updated your nomination.

A superannuation fund trustee must pay your benefits to a superannuation dependant.

A dependant includes a spouse (or de facto), child or someone you were in an interdependency relationship with at the time of death.
 

Disadvantages of a Non-Binding Death Benefit Nomination

 
The down side of a non-binding nomination is that it does not provide certainty as to who will receive your death benefits.

While the trustee is required to consider your nomination, it is their discretion who will receive the death benefit payment.

If you would like certainty about who would receive your super or pension balance upon death, you should consider a Binding Death Benefit Nomination.

Most superannuation funds offer Non-Binding Death Benefit Nominations, but not all offer Binding Nominations.
 

Do Non-Binding Death Benefit Nominations Expire?

 
Generally, Non-Binding Death Benefit Nominations do not have an expiry date.

This is beneficial in that you do not need to constantly update it; however, can also be dangerous if you forget to update it when your circumstances change.

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Failing to update your nomination when your circumstances change could mean your super is paid to an unintended recipient upon your death.

Binding Death Benefit Nominations often have an expiry of 3-years, unless they are Non-Lapsing Binding Death Benefit Nominations.
 

Tax Implications of Death Benefit Nominations

 
Generally, no death benefits tax is payable if your remaining super or pension balance is paid to a superannuation tax dependant of yours upon your death.

A superannuation tax dependant includes:

  • a spouse (de facto);
  • former spouse (former de facto);
  • child under 18;
  • financial dependant;
  • or person in an interdependency relationship with you

If your balance is not paid to a tax dependant, death benefits tax of 15%, plus the Medicare Levy, is deducted from the taxable component of the death benefit.

An example of a non-tax dependant would be a child over the age of 18.

You can use this calculator to calculate potential death benefits based on your current super balance and components.
 

Can A Non-Binding Death Benefit Nomination Be Challenged?

 
A superannuation death benefit nomination can be challenged. This is true for both binding and non-binding nominations.
 

What is a Reversionary Beneficiary?

 
A reversionary beneficiary is different to a superannuation death benefit nomination.

A reversionary benefiary is a person who has been nominated as a pension reversionary beneficiary at the commencement of an income stream.

If the original owner of the income stream passes away, the pension income stream simply continues to be paid to the reversionary beneficiary.

In the instance where a reversionary pension is in place, a death benefit nomination is irrelevant in regard to the balance of the pension.

Chris Strano

Chris Strano created SuperGuy to help the average punter navigate through the complex and ever-changing super rules. It has since become one of Australia's leading digital super resources. Subscribe to SuperGuy's YouTube channel for the latest strategies to boost your super savings. https://www.youtube.com/c/superguyau

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2 Comments

  1. Mark Taylor

    Hi Chris

    I would value your opinion on a situation that seems to have had little publicity and that even the super funds themselves have differing interpretations of the rules. Excuse the detail but it’s necessary for clarity.

    My wife and I receive a part age pension and are self employed. Due to a windfall we put $100,000 each non-concessional into our super funds in early 2019 plus $20,000 each concessional. My fund (AustSuper) had a long term $15,000 already in it, my wife’s (SunSuper) already had $30,000 in it.

    In September we both converted $120,000 of our super into income streams. In October we submitted an intent to claim a tax deduction for both lots of $20,000 in order to maximise our Centrelink benefits.

    My fund says that I am only eligible to claim $15,000. My wife’s fund says we cannot claim any at all because the notice of intent was received after the income stream was started.

    Both funds cannot be correct, can they? After all, most of our income streams are based on existing or non-concessional contributions.

    Thanking you in advance.

    Reply
    • Chris Strano

      Hi Mark, there are a number of risks with super such as this that people don’t realise, yet can have a significant financial impact. Without knowing the details, I’m guessing both of your super funds could be correct. The reason for this is because it’s partly a procedural anomaly and super funds with different processes may have different outcomes. Generally, if you commence an income stream prior to providing an intent to claim a tax deduction form, you are unable to do so after the fact. I’m assuming your fund is saying you can claim $15,000 because they are saying that your $120,000 was used to start an income stream and therefore $15,000 remains in accumulation phase and can be claimed as a tax deduction. In relation to your wife’s fund, it seems strange, but maybe the $120,000 was used to immediately commence the income stream and didn’t physically pass through the accumulation account. I’m just speculating here… I’m not really sure with her’s to be honest. I would push a bit harder with your wife’s case though given she has/had $30,000 in the accumulation account that they can use as the concessional contribution amount. You also need to consider the contribution cap issues, as you may now have both exceeded the general non-concessional contribution cap of $100,000 per person per year. Depending on your age, it will either trigger the bring-forward rule or result in excess non-concessional contribuitons tax.
      Unfortunately, we constantly see issues like this occur. I am genuinely empathetic for you if this doesn’t get resolved, because it is obvioulsy a costly experience, but am equally frustrated when I hear these stories because people either choose not to pay for relatively inexpenisve financial advice, or obtain advice from an accountant who may know the rules, but doesn’t consider the practical implications.
      All the best. I’d be interest to hear how you go.
      Regards,
      Chris
      Related Posts
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      Excess Non-Concessional Contributions Tax

      Reply

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