Getting Your SMSF Estate Planning Right With Death Benefit Nominations

A Self-Managed Superannuation Fund (SMSF) is designed to support you financially when you retire, but it is also important for your family and loved ones. This is particularly applicable whenever you die - the money that you have built up in your super can be a real help to the people that are important to you.

In films and on television the money that a person leaves after their death is distributed according to their will. But the rules for Australian SMSFs are different. Wills are sometimes a part of the process, but superannuation law and any rules that govern the fund take precedence.

What does this mean for you? In simple terms, it means you should not ignore this element of your SMSF administration, even if you have created a will. Instead, you should clearly state how the money in your SMSF should be allocated when you die, using a death benefit nomination.

This is uncomfortable for many people to do - no one likes to think about when they are going to die. But taking the time to get the death benefit nomination right now will save your family and loved ones a lot of hassle in the future.

What Is A Death Benefit Nomination?

Essentially, it is a written instruction to the SMSF trustee that tells the trustee how you want the benefits in your SMSF to be allocated. It can take two different forms:

  • Binding
  • Non-binding

A binding death benefit nomination spells out specifically how much money you want to pay, and who you want it paid to. The trustee must adhere to this instruction completely - in other words, there is no discretion.

A non-binding death benefit nomination outlines your preferred beneficiaries, but it gives your trustee discretion over how the final allocation is worked out.

Should You Use Binding Or Non-Binding?

Whether you use a binding or a non-binding death benefit nomination is up to you. A binding nomination will ensure that your wishes are fulfilled, but it is much harder for changed circumstances to be accounted for. An example could be where there is an estrangement in the period between you making the binding death benefit nomination and your death. Another example is when a new baby is born and you die before updating your nomination.

A non-binding nomination gives your trustee much greater flexibility to deal with these sorts of situations.

Whichever option you choose, it is recommended that you keep your death benefit nomination up-to-date. Generally, this means updating it about once every three years. This gives you the opportunity to make changes based on your new circumstances – it is always better that you take this responsibility rather than leaving it to your loved ones to deal with after you die. It is important that these updates are done on both types of nomination, but it is even more important for binding nominations. Remember, they remain in force regardless of any changes in circumstances, and regardless of how long ago they were written.

Changing them is straightforward, so make sure yours is up-to-date.




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