Binding Death Benefit Nominations

Superannuation is not an estate asset. On death the benefit is paid by the trustee of the fund under the fund's deed and the superannuation law. A will directs the estate, and reaches a death benefit only where the benefit is directed to the legal personal representative.

A binding death benefit nomination is the instrument that removes the trustee's discretion and directs where the benefit goes. It is short, it is frequently done badly, and it fails at exactly the moment it is needed.

Why nominations fail

• It lapsed. Many nominations expire after three years. Members sign one and never think about it again.
• The deed did not permit it. Whether a fund can accept a non-lapsing nomination, and in what form, is a question for the deed. A nomination that does not match what the deed requires may not bind the trustee at all.
• The formalities were not met. Signing and witnessing requirements are strict, and courts have held nominations ineffective for departures that look trivial.
• The nominee is not eligible. A benefit can only be paid to a dependant or to the legal personal representative. A nomination in favour of a parent, a sibling or a friend who is not a dependant generally cannot be given effect.
• Circumstances changed. A nomination naming a former spouse, or a dependant who has since died, can produce an outcome nobody intended.
• A deed update revoked it without anyone realising.

Who can receive a benefit

The permitted recipients are, broadly, a spouse, a child of any age, a person in an interdependency relationship, a person financially dependent on the member, and the legal personal representative. That is a narrower class than most people assume, and it does not follow the categories a will would use.

Separately, and importantly, the people who may receive a benefit are not the same as the people who can receive it tax free. An adult child is eligible to be paid directly but is frequently not a tax dependant, with the result that the taxable component of the benefit is taxed. For many families that is the largest single tax consequence in the estate plan, and it can sometimes be reduced with planning done in advance.

Eligibility and tax treatment are different questions. A nomination can be perfectly valid and still be the expensive option.

To the estate, or direct?

Directing the benefit to the legal personal representative brings it into the estate, where it can be dealt with by the will, including by funding a testamentary trust. That can be the right answer where the intended beneficiaries are minors, where the family wants the protection a trust gives, or where the estate needs liquidity.

It also exposes the benefit to claims against the estate, and can change the tax outcome. Paying a dependent spouse directly is frequently simpler and cheaper. The right answer depends on who the dependants are, what else is in the estate, and how the family is placed.

What we do

• Check whether an existing nomination is valid and still in force.
• Confirm what the deed requires, and update the deed first where it will not support what is wanted.
• Prepare the nomination and the trustee acknowledgement.
• Advise on paying to the estate against paying direct, alongside the rest of the estate plan.

This page is general information. It is not legal, tax or financial advice, and your fund's deed and circumstances will change the answer.