Binding death nominations: Why are they important and how they work
Putting in place a Binding Death Nomination is an important consideration for anyone with a SMSF so there is clear understanding of who will receive the superannuation benefits if a member of the fund dies.
Without a proper Binding Death Nomination the payment of a superannuation benefit on the death of a member ends up a being a matter of trustee discretion.
Who death benefits can be paid to
Death benefits can only be legally paid to a member’s dependents, including:
- Spouse
- Child
- Any person who has an interdependency relationship
- Legal representative in the absence of the above.
An Interdependency relationship exists between two people where:
- They have a close personal relationship (i.e. a demonstrated and ongoing commitment to the emotional support and wellbeing of each other)
- They live together
- One or each of them provides the other with financial support
- One or each of them provides the other with domestic support and personal care.
Formal Requirements for Death Benefit Notice
In order for a death benefit notice to be binding it must be permitted under the trust deed and meet several strict conditions under the SIS Act, such as:
- Be in writing
- Be signed and dated by the member in the presence of two witnesses
- Contain a declaration signed and dated by the witnesses stating that the notice was signed by the member in their presence.
If an item of information given by the member in the notice is not sufficiently clear to allow a trustee to pay the benefit, the trustee must seek from the member a written statement to clarify the item as soon as practicable.
Revoking the Death Benefit Notice
At any time a member who has given a death benefit notice may confirm, amend or revoke the notice by completing the formal notice requirements.
Period of Effect
Unless already revoked by the member, the normal period in which a notice ceases to have effect is:
- Three years after the day it was first signed, last confirmed or amended, by the member
- If the governing rules of the fund fix a shorter period—at the end of that period.
Note: Under the Cooper Review Final Report it was recommended the SIS Act should be amended so that binding death nominations only have to be reconfirmed every five years instead of three years.
Payment on death of a member
Where all formal requirements have been satisfied, the trustee must pay a death benefit to the nominated person if:
- The person, or each of the persons mentioned in the notice is a legal personal representative or a dependant of the member
- The proportion of the benefit that would be paid to that person, or to each of those persons, is certain or readily ascertainable from the notice.
State legislation
It should be noted that State legislation regarding wills and testamentary depositions may determine the extent to which a member's death benefit nomination is in fact, binding. The State provisions will not necessarily be overridden by the SIS legislation. For example, the Family Provision Act 1982 (NSW) contains provisions which, in certain circumstances will permit a court to override the deceased member's direction and result in a court ordering that the money be paid to other dependants, or in different proportions, from those nominated by the member.
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