Q. My husband and I have just re-written our Wills, our solicitor has instructed us to ensure we nominate each other as beneficiaries under our Superannuation funds and that they be Binding Death Benefit Nominations. Shouldn’t our Wills cover our instructions on death and 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. Your share of assets owned as “Tenants in Common” with other parties do form part of your estate and are dealt with via your Will. 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 a “Death Benefit Nomination”.
A Superannuation lump sum death benefit can only be paid to an eligible beneficiary or be specified to be paid to your “Estate/Legal Personal Representative” 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 speaking, there are two types of 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.
A valid Binding Nomination compels the Trustee to pay the death benefit to the nominated beneficiary provided they are an eligible beneficiary at the time of your death. A Binding Nomination can be non-lapsing where the nomination will never expire or it can be a Lapsing Binding Nomination where the nomination will expire every 3 years.
A Binding Nomination must be signed in the presence of two witnesses who are over age eighteen and are not nominated as beneficiaries.
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 to provide a benefit to other potential claimants. 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, is legally valid and most importantly reflects your wishes.