Binding Death Benefit Nominations
BINDING DEATH BENEFIT NOMINATIONS – AN IMPORTANT PART OF ESTATE PLANNING
A person’s interest in a superannuation fund is not an asset that automatically passes in accordance with the provisions of their will. At this time, and increasingly in the future, superannuation entitlements are one of a person’s most valuable resources. Accordingly, it is essential that proper advice is received about what will happen to superannuation entitlements upon death, and that appropriate strategies are in place to ensure that superannuation entitlements achieve a person’s estate planning objectives.
Generally, the Trustee of a superannuation fund (whether it be an industry fund, or a Self Managed Superannation Fund) has a discretion in respect of payment of death benefits. However, if a valid binding death benefit nomination is in place when a person dies, the Trustee of the superannuation fund is bound to pay death benefits in accordance with the directions contained in the binding death benefit nomination.
Importantly, in order for a member of a superannuation fund to make a binding death benefit nomination, the rules of that fund must expressly permit the creation of binding death benefit nomination. Not all superannuation funds permit the creation of binding death benefit nominations. In particular, a Self Managed Superannuation Fund (SMFS) created prior to 1999 is unlikely to contain a rule permitting the creation of a binding death benefit nomination unless it has been appropriately updated since 1999.
Proper advice must be received as to the importance of determining whether a person’s industry fund or SMSF permits the creation of binding death benefit nominations. In the case of SMSF’s, advice should also be received about having the rules of the fund updated so as to permit the making of a binding death benefit nomination.
To illustrate the importance of this issue, consider the following hypothetical (though quite realistic) example:
Jack lives happily with his second wife, Jill, and their young child. Jack and Jill jointly own their family home, which will pass to Jill by survivorship upon Jack’s death. Jack’s only other significant asset is his death benefit under his SMSF.
Jack also has two teenage children from his first marriage.
Jack wants to leave his superannuation death benefit to the children of his first marriage, as the child of his marriage to Jill will be adequately provided for by assets that are owned by Jill.
Jack’s estate planning objectives will be difficult to achieve unless his SMSF permits the creation of binding death benefit nominations. By creating a binding death benefit nomination in favour of the children of his first marriage, Jack can ensure that adequate provision is made for these children in the event of his death.
A member of the Stacks Wealth Protection Team will be able to answer any questions you have, and help you to set up a binding death benefit nomination.
