Did you know that your Will does not control who your superannuation benefits go to upon death?
On death, a members super benefit becomes payable as either a lump sum or a pension. The trustee of the super fund, in accordance with the fund’s trust deed, makes a decision as to who these benefits are paid to.
However, as a member you are able to make a written direction, known as a Death Benefit Nomination, to your super fund specifying who receives your death benefit. This notice can be binding (known as a Binding Death Benefit Nomination or non-binding (known as a Non-Binding Death Benefit Nomination).
If you make a valid Binding Death Benefit Nomination, the trustee must pay your death benefit in accordance with your nomination. If you make a Non-Binding Death Benefit Nomination, the trustee can have regard to your nomination, but does not have to follow it.
Additionally, your nomination can be lapsing or non-lapsing. A lapsing nomination must be renewed after it lapses (usually every three years) and a non-lapsing nomination stays in place until it is revoked or replaced.
However you can’t nominate anyone you like to receive your superannuation death benefit. Under super law you can only nominate either the executor of your Will or a superannuation dependant (e.g. spouse and children). If it is paid to the executor of your Will, the benefit then forms part of your personal estate and must be paid out in accordance with the terms of your Will.
The importance of Binding Death Benefit Nominations was highlighted in the 2013 case of Wooster v Morris. Mr Morris (the deceased) had two adult daughters from a previous marriage, and a second wife (Mrs Morris). Mr & Mrs Morris were joint trustees of their self-managed super fund and Mr Morris had made a Binding Death Benefit Nomination in favour of his two daughters.
Mr Morris subsequently died, and Mrs Morris appointed herself as sole trustee of the SMSF. She argued that the Binding Death Benefit Nomination that Mr Morris made was not binding, and paid herself the entire death benefit of $924,000.
The daughters challenged this in court and the court found that the nomination was binding and held in favour of the plaintiffs. Without the Binding Death Benefit Nomination, the daughters would have had no claim to the death benefit. This was a good result and shows the importance of having a properly drafted and executed Binding Death Benefit Nomination that has regard to the contents of your Will, your SMSF trust deed, and your estate plan.
Pro tips:
Make sure you ask your lawyer or other professional advisers about Death Benefit Nominations when doing any of your estate planning
Appointing an Enduring Power of Attorney is another important aspect of estate planning, which enables another person to make a decision on behalf of someone that becomes incapacitated
If you have a lapsing Death Benefit Nomination, make sure you diarise to have this extended immediately on the expiry date.
Author: Heather Cox
Email: heather@faj.com.au
