Superannuation is specifically excluded from the pool of assets and other interests that can be disposed of by a person via their will. It is possible for the superannuation member to nominate their Legal Personal Representative (LPR) to receive their superannuation entitlements.

This person is usually the executor of their estate and the result is that the assets of the fund would pass down to the executor, to be distributed in accordance with the deceased’s will.

However, the specific distribution of superannuation assets is not directly dealt with in the will. It therefore follows that binding death benefit nominations are the equivalent to a will for members’ superannuation entitlements.

Traditionally, the Trustee of a superannuation fund was not bound to comply with the wishes of the superannuation member in the event of their death. The decision with respect to whom the benefit should be paid was totally at the discretion of the Trustee and was often a result of extensive investigations into the deceased member’s personal background and family situation.

While the Trustee would take into consideration the wishes of the members as stated on the death benefit nomination form, the nomination was not binding on the Trustee.

It was not uncommon (some instances that we are personally aware of) for it to take years for the Trustee to resolve the matter and pay the death benefit.

This was because any person who could demonstrate they were financially dependent on the deceased or otherwise satisfied the definition of a “dependant”, (whether or not the deceased had nominated for them to receive their superannuation benefits) could make a claim for the death benefit.

A cautious approach by the Trustee is always warranted, given that where a death benefit is paid and another party could prove (through the court system) that they should have received some or all of the benefit, then the Trustee could be made to pay the benefit again.

Now with the introduction of binding death benefit nominations, members can be certain that their superannuation will be distributed in accordance with their wishes.

Formal Requirements with respect to Binding Death Benefit Nominations

The following is a summary of the legislative requirements for preparing a binding death benefit nomination:

• Trustee must give information

The trustee must give to the member information that the trustee reasonably believes the member reasonably needs for the purpose of understanding the right of that member to require the trustee to provide the benefits.

For a SMSF, many of the members reporting requirements are not relevant given the Trustee/s and the member/s are one-in-the-same.

• Trustee must follow election

(a) The person, or each of the persons, mentioned in the notice is the legal personal representative, or a dependent of the member (discussed below); and
(b) the proportion of the benefit that will be paid to that person, or to each of those persons, is certain or readily ascertainable from the notice; and
(c) the notice is in accordance with formal requirements – (see below); and
(d) the notice is in effect.

See below also for definition of “dependant”.

• Confirmation, amendment, revocation

A member who gives notice to the Trustee may:

(a) confirm the notice by giving to the trustee a written notice, signed, and dated, by the member, to that effect; or
(b) amend, or revoke, the notice by giving to the trustee notice, in accordance with formal requirements (see below), of the amendment or revocation.

• Formal requirements of notice

The notice:

(a) must be in writing; and
(b) must be signed, and dated, by the member in the presence of 2 witnesses, being persons:

   (i) each of whom has turned 18; and
   (ii) neither of whom is a person mentioned in the notice; and

(c) must contain a declaration signed, and dated, by the witnesses stating that the notice was signed by the member in their presence.

Where the notice does not comply with these strict criteria, the member’s nomination of Dependants is not binding on the Trustee. It would still however serve as an indication to the wishes of the member in the event of death.

Period of effect

Unless sooner revoked by the member, a notice ceases to have effect:

(a) at the end of the period of 3 years after the day it was first signed, or last confirmed or amended, by the member; or
(b) if the governing rules of the fund fix a shorter period - at the end of that period.

Dependants

In the binding death benefit notice, you can elect to dispose of your superannuation to a dependant which includes:

(a) A spouse (married or defacto);
(b) A child (of any age);
(c) A person with whom you have an interdependency relationship.

An Interdependency relationship includes 2 persons (whether or not related by family) if:

(a) they have a close personal relationship; and
(b) they live together; and
(c) one or each of them provides the other with financial support; and
(d) one or each of them provides the other with domestic support and personal care.

Furthermore, if the 2 persons (whether or not related by family) do not meet the conditions of (a), (b) or (c) above, they still have an interdependency relationship if the reason they do not satisfy those criteria, is that either or both of them suffer from a physical, intellectual or psychiatric disability.

Examples of people who may meet the definition of interdependency are (but not limited to):

(a) Elderly sisters who live together;
(b) Same sex couples;
(c) A carer not living with but attending to the daily need of a disabled person.

Completing the form

1) For lump-sums, you should nominate percentages of your benefit which should be paid to dependants – not fixed dollar amounts.
2) For pensions, you could nominate a percentage of your benefit to be used to pay a pension. You could also nominate an annual dollar pension amount, however this is difficult to do – you don’t know how much super will be available when you die.
3) If lump sums or pensions or combinations of these are required, these should be stated on the form.
4) In the event of death of one of your dependants, it is important your form is updated immediately.

Taxation of Benefits

Different tax rules apply for lump sums and pensions, depending on whether the member is an “accumulation” member or a pension member, the age of the recipient of a death benefit and numerous other factors.

Taxation advice should be sought when considering these issues.

Disclaimer:
This brochure is not highly technical in nature and is not intended to be financial planning or estate planning advice – it is general information only.
No reliance should be placed on this document by any person and no one should act on information included in this document without seeking appropriate legal advice.

Super Matters are not solicitors and the information in this brochure is our interpretation of the subject matter, based on our understanding of the laws that exist at the time of writing.