Having a Death Benefit Nomination (DBN) in place is one of the most important documents members of a Self-Managed Super Fund can complete. Having this in place simply takes the burden off the surviving family members. There are many misconceptions that a person’s Will cover their superannuation benefits however this is not the case. Providing the DBN is accurate and valid and in accordance to the fund’s governing rules (from the trust deed), the direction of benefits in the event of death lies in this form.
The first step is deciding what type of nomination a Member should make. There is no particular way to best pay out a member’s superannuation death benefit. Each individual will vary and consideration will need to be taken into place (i.e. social security benefits, taxes, outstanding debts etc.).
There are basically two types of death benefit mixes:
- Flexibility for the beneficiaries to have over the decision; or
- Having control over the payment of funds paid to specific beneficiaries and in what form
A superannuation death benefit can be paid to a deceased member’s estate, in which it will then be covered under the member’s Will. Sometimes this avenue is not the best option as it may disadvantage the beneficiaries due to their current financial situation.
So once the type of nomination is decided, the choice left is determining what type of death benefit nomination to make within the member’s SMSF. The most common are binding and non-binding options which we will examine in more detail below.
Non-Binding Death Benefit Nomination
Commonly also known as a standard or discretionary nomination, this option allows the Member to provide the Trustee as to how all or some of their Death Benefits may be distributed out to beneficiaries. Under this nomination, the Trustee is the one in control of the distribution and is most commonly used when distribution is made to a single beneficiary (i.e. spouse) who would remain as the Trustee of the SMSF. There is no expiry date in relation to this particular type of nomination.
Binding Death Benefit Nomination
This particular type of nomination is quite popular in industry and retail superannuation funds as these type of nominations allow the Member to direct the Trustee of the Fund on what proportion their death benefits are to be paid and to nominate any beneficiary to receive these benefits in the event of their death. This type of nomination is beneficial as it provides certainty around who and how much your beneficiaries receive. Binding Death Benefit Nominations removes the role of the Trustee discretion. These are required to be updated every 3 years and are not offered by all superannuation funds. The certainty who will receive proceeds in the event of death make it a popular choice when estate planning is involved, in particular for blended, mixed or extended families.
If you would like to discuss your estate planning or superannuation in more detail please contact Wayne Patten in our office on 5413 9300.