Superannuation is a crucial aspect of financial planning, and understanding the complexities of nominations and estate planning is vital. Recent life changes or approaching milestones may necessitate a re-evaluation of your superannuation nomination.
In this comprehensive guide, we explore the intricacies of binding and non-binding nominations, providing insights to unlock the full potential of your superannuation benefits.
Binding Death Benefit Nominations in Estate Planning: Taking Control
What Is a Binding Death Benefit Nomination?
Superannuation does not automatically flow to the estate upon death. The trustee of the superfund typically pays a death benefit following the fund's rules and relevant laws. However, a binding death benefit nomination offers a way to override trustee discretion. It is a legally binding directive that allows you to specify who receives your superannuation benefit in the event of your passing.
Validity Requirements
For a nomination to be binding, it must be 'valid.' Validity requires adherence to specific criteria. Only 'dependants' can be nominated, and depending on your circumstances, you can nominate one or multiple dependants. Superannuation law defines dependants to include:
A spouse (including de facto, opposite and same-sex)
Children of any age (including adopted or ex-nuptial)
Any person(s) financially dependent on the member
Any person(s) in an interdependency relationship with the member
A legal personal representative (LPR)
Role of Binding Nominations in Estate Planning
A primary benefit of a binding death benefit nomination is the peace of mind and certainty it provides. This is especially imprtant if you have multiple beneficiaries, such as those from previous marriages, who may have a claim on your death benefit. With a binding nomination, you can reasonably ensure that your wishes are honoured, specifying who receives what proportion of your death benefit.
Ease and Speed
Another advantage is the streamlined process of distributing death benefits. If your beneficiary requires quick access to your benefit, a binding death benefit nomination facilitates a more timely distribution. Your beneficiary won't have to wait for trustee or estate determinations, expediting the transfer of assets.
Making a Valid Binding Death Benefit Nomination
To ensure validity, follow these procedures:
Written Nomination: Prepare a written nomination clearly outlining the proportion of the benefit for each person and the type of benefit payment.
Signature and Witnesses: Sign the nomination in the presence of two witnesses over 18 years old who are not nominated beneficiaries.
Witness Declaration: Include a signed witness declaration.
Submission to Trustee: Send the nomination to the trustee. The nomination becomes valid upon receipt by the trustee.
A binding nomination remains valid for three years from the signing date or may be non-lapsing based on superannuation trust deed options. You can renew, change, update, or revoke it at any time.
When Binding Nominations May Not Be Appropriate
While binding nominations offer certainty, they require formal renewal every three years or with changing circumstances. They may not be suitable for everyone, especially when certainty already exists, such as in cases with a sole dependant. Additionally, if the nominated person is not a dependant or LPR at the date of your death, the nomination is not valid, requiring alternative estate planning arrangements.
Non-Binding Nominations: Flexibility Amid Complexity
In contrast to binding nominations, non-binding nominations provide the trustee with discretion to protect beneficiaries' interests in changing circumstances. This flexibility becomes essential in various scenarios, such as when one of your beneficiaries is bankrupt.
Understanding Superannuation Nominations
A superannuation nomination serves as a directive to your superfund trustee, indicating who should receive your superannuation benefits upon your passing. However, it is crucial to recognize that your superfund trustee is bound only by a nomination that adheres to superannuation laws.
Superannuation funds often provide limited guidance on what constitutes a valid nomination, adding complexity to an already intricate process.
What Makes a Valid Superannuation Nomination?
Your superfund trustee evaluates the following hierarchy of beneficiaries when considering the distribution of your super:
Your Spouse or Ex-Spouse
Your Children or Other Financial Dependents
Your Estate
Now, let's delve into each category to better understand their implications.
Your Spouse or Ex-Spouse
While it may seem intuitive for a superfund trustee to automatically pay your super benefits to your partner, complexities arise if you have separated or divorced since making the nomination. Surprisingly, the nomination is not automatically revoked, and it remains valid, potentially leading to your benefits being paid to an ex-spouse.
Your Children
Superannuation's primary purpose is to fund the retirement of the account holder and their dependents. Spouses and children deemed financially dependent receive preferential treatment under superannuation law. Children under 25 or those with disabilities are considered dependents.
However, if you intend to nominate to children, it is crucial that you consider the following:
Nominating nieces or nephews is invalid.
If children are under 25 and a spouse or ex-spouse is alive, they become the guardians, and the super benefit goes to them until the children reach 18.
Super benefits paid to children over 25 are heavily taxed, resulting in uneven distribution.
Once children are over 18, the superannuation fund pays the entitlement directly to them, lacking protection until they reach an older age.
If your goal is to benefit your children and concerns arise from the above issues, nominating your Estate as the beneficiary, provided you have an up-to-date Will, can be a solution. Your Will then controls the distribution, allowing for tax reduction and protection for your children.
Your Estate
As outlined above, nominating your Estate provides a versatile solution to many pitfalls associated with superfund nominations. It enables tax reduction, asset protection strategies, and the distribution of super death benefits to third parties outlined in your Will.
However, in doing so, you must be aware that:
This option may lead to a delay in distributing superannuation death benefits after your passing.
It increases the value of your estate, potentially affecting the asset pool in case of Will challenges.
Reviewing your superannuation nomination concurrently with your Will and Powers of Attorney is a strategic move. This comprehensive approach ensures that your financial directives align seamlessly, providing maximum benefits to your loved ones and minimizing potential challenges.
In Conclusion
Navigating the complexities of superannuation nominations and estate planning requires a comprehensive approach. Whether opting for binding or non-binding nominations, understanding the implications and regularly reviewing your choices in tandem with your Will and Powers of Attorney is crucial.
By taking control and making informed decisions, you can maximise your superannuation benefits, ensuring your wishes are not only heard but effectively executed. Don't let the intricacies trap you—navigate them, and secure the financial future of your loved ones.
If you need assistance in relation to your estate planning matter, please do not hesitate to contact our experienced legal team.