Binding Death Benefit Nominations – Who gets your super benefits?

It is a question that most of us will not have given much thought to who will receive our super benefits in the event that we pass away?

If you have particular wishes, simply writing a name or ticking a box may not be sufficient to realise your intended plans. In many cases, the absence of correct estate planning documentation will see decisions made by the trustees of your super fund on where the funds will be allocated, potentially following generic rules which may see an undesired outcome.

The following case is a general example:

A mother passed away, having been predeceased by her husband, and had previously signed a trustee minute that her benefits be paid to her three children, however not in equal amounts. She believed that her eldest two children were financially secure, having benefited from a previous inheritance decision when compared to the third child who she wished to receive the bulk of the benefit.

The trustees of her super fund did not agree that her wishes were legally valid since they believed that the correct procedures had not been followed, and decided to pay the super benefits out to her three children in equal amounts.

In the case of self-managed super funds, several court cases have provided an indication of the need for correct legal processes and forethought. The 2005 case of Katz vs Grossman saw a father intend to divide his $1 million SMSF balance equally between his son and daughter. Following the passing away of his wife several years previously, the father had appointed his daughter as a trustee of the fund alongside himself in order to remain compliant. On his death, the father’s intentions were not realised. The daughter appointed her husband as a replacement trustee for her father and, as trustees, decided to pay the balance of the fund to her. The son challenged this decision, however, the court determined that she was legally able to do so as a trustee without a valid binding death benefit nomination from the father.

In both cases, the original intentions of the members of the super funds were not carried out.

One possible option is to complete a Binding Death Benefit Nomination. This will bind the trustees of your super fund to pay out the benefits of your super to either your dependents or your estate in the amounts specified by you.

Careful consideration must be made to ensure that the nomination is compliant with the fund’s trust deed and has been completed correctly. An example of incorrect completion was the recent case of Munro vs Munro where the deceased had named the “trustee of the deceased estate” as the beneficiary, which did not comply with superannuation law – incidentally, the correct term should have been “legal personal representative” which would have also resulted in the estate receiving the benefit. As a result, the nomination was not deemed to be binding and, against the wishes of the deceased, the funds were not paid to the estate.

Other possible ways to direct your super benefits include non-binding death benefits, lifetime binding death benefits, reversionary pensions and wills.

Ensuring you receive the correct estate planning and legal advice is a vital part of ensuring your wishes are watertight. If you have any concerns regarding who you would like to receive your benefits please reach out and discuss your situation with the JBS Financial team.