Q: My wife and I have just redone our Wills and our solicitor has told us to ensure we nominate each other using Binding Death Benefit Nominations in our superannuation. Why does it need to be a binding nomination?
A: Your Will is a legal document that sets out your wishes for the distribution of your estate assets on your death. Assets owned jointly as “joint tenants” are not covered by your Will as ownership will revert to the surviving owner on your death. Similarly, assets held in trust on your behalf are generally not dealt with under your Will but are governed by the terms of the applicable Trust Deed.
Superannuation is an example of an asset held in trust on your behalf. As the trustee owns the assets on your behalf, the legal mechanism to instruct the trustee on how to distribute the proceeds of your superannuation on your death is contained within the fund’s trust deed. As such, superannuation death benefits are generally not able to be dealt with under your Will.
A superannuation lump sum death benefit can only be paid to an eligible beneficiary or be specified to be paid to your “estate” as the death benefit nomination.
An eligible beneficiary must be a spouse, your child, an individual financially dependent upon you, or an individual you have an interdependency relationship with.
An interdependency relationship is defined as a close personal relationship, where you live together, one or each of you provide financial support and domestic support and personal care.
Broadly, there are two types of superannuation death benefit nominations; binding and non-binding. A non-binding death benefit nomination is not binding on the trustee of the superannuation fund to pay out the funds to your specified beneficiary. In some circumstances, a superannuation trustee may allocate a portion of your superannuation benefit to an individual regardless of your nomination, provided they meet the definition of a beneficiary – that is the fund trustee retains discretion as to how your death benefit will be dealt with.
On the other hand, a valid binding death benefit nomination compels the trustee to pay your death benefit to the nominated beneficiary provided they are an eligible beneficiary at the time of your death. That is, the surviving trustee will not have any discretion with regards to who it allocates your superannuation death benefit to.
Presumably, your solicitor has recommended Binding Death Benefit Nominations for your superannuation funds to ensure that the proceeds are paid out to the surviving spouse without the risk of the trustee executing discretion. A disgruntled claimant has no right of recourse against the trustee in disputing your Binding Death Benefit Nomination.
It could also be to pay out the benefits as expeditiously as possible. As the claim does not form part of your estate, (unless the estate was specified as the Death benefit Nomination) the death benefit would not be tied up with the conventional process of settling the estate, and the delays associated with a Grant of Probate.
Making a Death Benefit Nomination is as critical as ensuring you have a valid Will. With life insurance and retirement savings typically being held within superannuation, the vast majority of your net worth and who receives the benefit may be determined by your superannuation Death Benefit Nomination. So make sure your Death Benefit Nomination is up to date and valid.
Q: Do my wife and I really need to grant each other Enduring Powers of Attorney as has been suggested to us?
A: Many couples assume that their spouse can make legal decisions on their behalf, enter into transactions (e.g. sell the family home), or even complete financial transactions (e.g. a withdrawal from your bank account). This is actually incorrect.
A Power of Attorney is a legal document appointing a person or trustee organisation of your choice, to manage your financial and legal affairs while you are alive. This person or organisation is then known as your attorney.
An attorney can act for you in a variety of circumstances such as if you are taking an extended interstate or overseas trip. However, it is important to understand that a Power of Attorney cannot make use in areas such as accommodation, health and services.
Your attorney can act immediately and/or for a specified period of time. Further, they may also be able to act during a time when you are no longer able to manage your own affairs. This is referred to as an Enduring Power of Attorney, which means it continues even if you have lost your legal capacity. An Enduring Power of Attorney gives someone authority to make decisions on your behalf once you are no longer capable to do so.