SMSF Binding Death Benefit Nomination – what happens to Super when you die?
Superannuation is for your retirement. However, a dead person no longer needs retirement money. Therefore, the Superannuation must leave the low taxation environment. It is paid out at death. But who gets your super at death? An SMSF Binding Death Benefit Nomination directs where your super goes at death. It either goes to a person (dependent) or into your Will.
However, your Superannuation is not an estate asset. It does not automatically go into your Will. What happens if you have no binding nomination? The SMSF trustee pays out your Super as it sees fit. Fight back. A binding death benefit nomination overrides the trustee’s discretion.
Why use a death benefit binding nomination?
Binding death benefit nominations provide certainty. They ensure that upon your death, your super is paid according to your wishes, and are not left to the trustee’s discretion.
Stock (as Executor of the Will of Mandie, Deceased) v N.M. Superannuation [ 2015] FCA 612 states that if there is no binding death benefit nomination, then the only condition is that the trustee’s decision to pay the benefits is fair and reasonable. Without a binding nomination, the Superannuation trustees have the unfettered discretion to pay the benefits as they deem appropriate. The trustee:
- is only bound by the superannuation trust deed; and
- is not bound by any supplementary direction whether it be the deceased’s Will or pre-nuptial agreement.
Your trustees might be your second wife, the children of the first marriage, only one of the children. The Trustee can and often does, greedily transfer the superannuation just to themselves. This is if you don’t do a binding nomination.
Does my SMSF allow for SMSF Binding Death Benefit Nomination?
Many SMSF Deeds state that a binding nomination can only be completed on the exact Nomination Form contained in the Deed. However, most Nomination Forms don’t comply with the new law. Therefore, it is impossible for that SMSF to have binding nominations.
Legal Consolidated fixes all of that. We update the SMSF Deed to allow for any Nomination Forms. We also give you a fully compliant Nomination Form as part of the pack.
Legal Consolidated also updates your SMSF Deed. This ensures that your SMSF can set up binding nominations.
Build the SMSF Binding Death Benefit Nomination. The pack includes:
1. Deed of Variation – this updates your SMSF Deed to allow for binding death benefit nominations
2. Death Benefit Agreement (binding on Trustee and does not expire)
3. Updated Product Disclosure Statement
5. Letter on our law firm’s letterhead confirming the above. Signed by a partner of the law firm.
Who can get my Superannuation at death?
You can only nominate a:
1. dependent; or
2. legal personal representative (the trustee in your Will)
A ‘dependent’ includes:
1. your spouse and de facto (includes same-sex)
2. your children of any age (includes adopted)
3. any person financially dependent on you
4. any person in an interdependency relationship with you
5. your ‘legal personal representative‘ – the executor in your Will (LPR).
Adult children pay 32% tax on your Super
Your adult children pay 17% or 32% tax on your Superannuation. The death tax is on the concessional amount. Put a ‘Superannuation Testamentary Trust’ in your Will. The Super Testamentary Trust seeks to reduce death tax down to zero. You then nominate, in your binding nomination, your estate. You do this by ticking the ‘legal personal representative box’. Your Super then goes into your Will. The Super Testamentary Trust seeks to reduce the super death tax to zero.
‘Legal Personal Representative’ v’s ‘my estate’ – Munro v Munro
If you have a Superannuation Testamentary Trust in your Will then you should leave the superannuation so it goes into your Will. But in the binding nomination, you don’t use the expression ‘my estate’ or ‘my Will’. Instead, you only use the expression ‘legal personal representative’. Our binding nominations comply with Munro v Munro  QSC 61.
See what happens if you use a website that is not a law firm to build your binding nominations: https://www.legalconsolidated.com.au/many-binding-death-benefit-nominations-built-on-non-law-firms-websites-dont-work/
How can I control where my Superannuation goes at death?
Three things control where your Superannuation goes at death:
1. Trust Deed
2. Trustee’s discretion
3. Binding Nominations
1. not do anything, in which case, the Trustee decides where you super goes at death
2. non-binding nomination to help the trustee decide, but the Trustee of your SMSF may just ignore it
3. binding death benefit nomination that expires every 3 years – provided you die within the 3 years your Trustee must follow your binding nomination – it is binding on the Trustee
4 non-lapsing binding death benefit nomination – it never expires and it binds the Trustee
The Deed of Variation you are building allows you to opt for any of these.
Telephone us to help you answer the questions as you build the SMSF Binding Death Benefit Nomination online.
Adjunct Professor, Dr Brett Davies, CTA, AIAMA, BJuris, LLB, Dip Ed, BArts(Hons), LLM, MBA, SJD
Legal Consolidated Barristers and Solicitors
Australia wide law firm
Mobile: 0477 796 959
National: 1800 141 612