Non Lapsing Binding Death Benefit Nomination

A Non Lapsing Binding Death Benefit Nomination is a death benefit nomination made to the trustee of your superannuation account that does not have an expiry date.

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.

Think of a superannuation nominations as a ‘Will’ for your superannuation savings.

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.
 

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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.

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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

A Non Binding Nomination is a nomination made to the trustee that is not binding on the trustee.

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.

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. If you’re looking for more personalised advice, have a chat with one of our experts at www.superguy.com.au/need-advice

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9 Comments

  1. David Fraser

    Can I nominate my brother or sister as a non Lansing binding nominee.

    Reply
    • Chris Strano

      Hi David, a superannuation death benefit can only be paid to a superannuation dependent, which includes:
      the deceased’s spouse or de facto spouse
      a child of the deceased (any age)
      a person in an interdependency relationship with the deceased (this is a close personal relationship between two people who live together, where one or both provides for the financial, domestic and personal support of the other).

      Alternatively, you may nominate your estate as the beneficiary of your superannuation and have it distributed via your Will.
      It is very important that you discuss all of your estate planning needs with a specialist estate planning solicitor.

      Reply
  2. Terry

    Been in a de-facto relationship 22years
    My partner and I have two children together one at uni and the other still at high school, partner also has 3 adult children from previous marriage.
    He has recently done a non-lapsing binding nomination to all 5 children.
    20% each. I’m just wondering can I contest this if anything happens to him as I’m dependant on him
    Regards
    Terry

    Reply
    • Chris Strano

      Hi Terry, this is a legal question obviously, which is outside the scope of my knowledge; however my very little understanding is that anything can be challenged and will take into account the total distribution of assets (including via the Will). In saying this, I think the trustee will be compelled to pay it as per his wishes and the challenge would then come afterwards, which I imagine would be difficult and costly. It would be best to discuss this with him prior to him dying.

      Reply
  3. Diane Kereti

    hi Chris, my brother has just passed away i have been his beneficiery in his super, but was not up dated to Binding, he has a daugther who she had just found him, and a girlfriend who is claiming as a spouse/defacto she says they been together for 6/7 years, they did not live together, no bank acc or bills together. i am also his trustee and excector of his Will. Where do i stand?

    Reply
    • Chris Strano

      Hi Diane,
      Sorry for your loss.
      You’re in a tricky situation. This is most definitely a legal issue and you should be seeking specialist advice from a solicitor before making any payments. I’m sorry, but I am unable to help any more than that.
      Best of luck,
      Chris

      Reply
  4. Glenys Sutton

    Hi Chris, we have a SMSf and want to organise a non lapsing binding death nomination, is there anywhere I can download a form from

    Reply
    • Chris Strano

      Hi Glenys,
      SMSF non-lapsing binding death benefit nomination form 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 draft SMSF nominations is highly recommended.
      Furthermore, the governing rules of the SMSF will determine the type of superannuation nominations that can be accepted by the trustee from members. Check the SMSF Trust Deed to ensure it expressively permits non-lapsing binding death benefit nominations.
      I don’t believe it needs to be registered, but I may be wrong. I would suggest discussing this with a solicitor.

      Reply
  5. Glenys Sutton

    Hi Chris, in a follow up to my previous post, does the form have to be registered

    Reply

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