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.
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.
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.