Binding death benefit nominations

A ‘death benefit nomination’ is a legal document that allows a superannuation fund member to specify who should receive their superannuation benefits in the event of their death. When a superannuation fund member passes away, their superannuation account balance, along with any associated life insurance benefits, becomes part of their estate. A death benefit nomination is used to specify the beneficiaries who should receive the proceeds to ensure that these benefits are distributed according to their wishes.

There are two main types of death benefit nominations:

1. Binding Death Benefit Nomination: This nomination is legally binding on the superannuation fund trustee, who must follow these instructions. It specifies the individuals or entities (such as family members or a legal representative) who should receive the death benefits upon the member’s death.
2. Non-Binding Death Benefit Nomination: This nomination guides the trustee about the member’s preferences for distributing death benefits, but it is not legally binding. The trustee has the discretion to consider the nomination but can also consider other factors, such as the member’s financial dependents and other relevant circumstances.

Without a binding death benefit nomination, the following problems can arise:

1. Uncertainty in Beneficiary Designation: Without a BDBN, the superannuation fund trustee can determine how the death benefits will be distributed among the member’s potential beneficiaries. This can lead to uncertainty about who will receive the funds and may result in disputes among family members or other potential claimants.
2. Delays in Distribution: The absence of a BDBN could lead to delays in distributing the death benefits to the intended beneficiaries. The trustee may need to investigate the member’s family and financial circumstances to determine the appropriate beneficiaries, which can take time and may cause financial strain on the surviving family members.
3. Legal Disputes: Without clear instructions from the member, disputes may arise among family members or other parties claiming a right to death benefits. This can result in costly legal proceedings, which can further delay the distribution of the funds and potentially lead to strained relationships within the family.
4. Tax Implications: The tax treatment of death benefits can vary based on the relationship between the deceased member and the beneficiary. A BDBN can help ensure that the benefits are distributed in a tax-efficient manner based on the member’s intentions.
5. Inequality: If there are specific individuals or dependents the member wants to provide for, such as a surviving spouse, children, or other dependents, a BDBN can ensure that their financial needs are addressed. Without a BDBN, the trustee might not consider these preferences when distributing the benefits.