Traditionally, Binding Death Benefit Nominations had an expiry of 3 years. This would mean that you would need to update the nomination in writing every three years.
However, a Non Lapsing Death Benefit Nomination removes the need for this regular update.
This is because a Will does not have the power to distribute your superannuation.
If your superannuation is paid to your Estate, then it will be distributed via your Will, but there other ways, such as a binding nomination or a non-binding nomination which will bypass your Will all together.
What is a Binding Death Benefit Nomination?
A Binding Death Benefit Nomination is a nomination made to the trustee of your superannuation account detailing how you would like your member benefits distributed in the event of your death.
Such a nomination is binding on the trustee, meaning that the trustee must adhere to your request and not use their discretion in making death benefit payments.
Before making a Death Benefit Nomination you should take into account the taxation consequences of paying benefits to beneficiaries.
Risks of Non Lapsing Binding Death Benefit Nominations
As mentioned, Binding Death Benefit Nominations traditionally had an expiry of 3 years. This was a safeguard against people who failed to update their nominations as their wealth or circumstances changed.
The risk of a Non Lapsing Binding Death Benefit Nomination is that a member will forget about how they have nominated for their benefits to be distributed in the event of their death, which may result in hundreds of thousands, or even millions, being paid to unintended beneficiaries.
Keep in mind that many people own life insurance within their superannuation account. This life insurance is paid in accordance with the death benefit nomination.
Also, as people get older (and inevitably closer to death) more of their wealth tends to end up in their superannuation accounts due to the tax concessions available.
Superannuation will often be a persons largest asset at the time of their death, so ensuring the distribution of superannuation is made as intended is essential.
Alternative to a Non Lapsing Binding Nomination
There are two main alternatives:
1. A Lapsing Binding Death Benefit Nomination
This is the more traditional Binding Death Benefit Nomination. It expires after 3 years.
Upon expiry, the member will effectively have no nomination in place. To reinstate the nomination, the member is required to submit a new Binding Nomination to the trustee.
2. A Non Binding Death Benefit Nomination
Therefore, upon death of the member, the trustee will consider the nomination that has been made by the member, but will use their discretion to make the final distribution of the deceased’s member benefits.
This allows the trustee to take into account the deceased’s relationships and circumstances at the time of death, rather than at the time of nomination, in an attempt to make more suitable distributions.
3. Reversionary Pension
A reversionary pension is a pension where a reversioanry pension is nominated at the start of the pension.
When the original pension member dies, the remaining balance and/or income automatically reverts to the beneficiary.
Any pension balance for transfer balance cap purposes will count towards the beneficiary’s transfer balance cap after 12-months.
How to make a Non Lapsing Binding Death Benefit Nomination
Not all superannuation funds will allow Non Lapsing Binding Death Benefit Nominations. In fact, many don’t even allow Binding Nominations at all.
You will need to contact the trustee or disclosure documents of your superannuation account for information on your estate planning options.
If you would like to make a Binding Death Benefit Nomination within a Self Managed Superannuation Fund (SMSF), you should refer to the Trust Deed of the Fund to see what your options are.
If you are able to put in place Death Benefit Nominations, the Trustee, Trust Deed or Fund Disclosure Documents should be able to explain the process involved.
Not happy with the options you have available? You may consider changing superannuation funds. Depending on your employment agreement, you may have the option to choose your account from a range of superannuation companies.
If you would like anything clarified or have any further questions about Non Lapsing Binding Death Benefit Nominations or any other topics, please do not hesitate to leave a comment.