Everyone wants to protect their loved ones, especially if the unthinkable happens—that’s why the choices you make about your super today can deeply impact their future security in ways you might not realise.
If you’re considering binding or non-binding beneficiary nominations for your superannuation, it’s essential to understand the key differences and their implications.
At First Financial, we specialise in wealth-building and retirement strategies to help you achieve financial freedom. Superannuation is a vital part of this plan, and thorough estate planning ensures your assets are passed on to the right people. For super, a beneficiary is the person you nominate to receive your benefits. Here’s what you need to know when making that decision.
What is a superannuation death benefit?
A superannuation death benefit is a payment made to a dependant or the trustee of a deceased estate after someone’s passing. This payment may include the total superannuation balance, less any applicable charges or taxes, along with any death insurance the individual had in place.
The form of the payment depends on the rules of the super fund and the specific circumstances. Dependants can receive the benefit as either a lump sum or a super income stream, while non-dependants are typically paid a lump sum.
Including superannuation death benefits in your estate plan ensures your wishes are followed and helps prevent complications. Proper nominations also help your loved ones receive the support they need during an already emotional time.
Beneficiary nominations explained
A beneficiary nomination in a super fund is a formal instruction that designates who will receive your benefits upon your passing. Nominations can be binding or non-binding.
You can nominate a spouse, children or dependents as beneficiaries. You may also nominate your estate, in which case the benefits will be distributed according to your will. Beneficiaries must meet specific criteria, such as being financially dependent or having an interdependent relationship with you.
It’s important to regularly update your beneficiary nominations as life circumstances change, such as after marriage, divorce or the birth of children. Keeping your nominations current ensures that your superannuation benefits are distributed correctly and avoids complications or disputes.
Binding nominations for certainty and control
A binding beneficiary nomination is a legal instruction to your superannuation fund trustee, directing them to pay your death benefit to specific beneficiaries. If correctly completed, the trustee must follow your wishes without discretion.
Accuracy is crucial, as mistakes or incomplete nominations could render the form ineffective, potentially causing delays or leaving the decision to the trustee.
Binding nominations can be either lapsing or non-lapsing.
A lapsing nomination typically expires after three years and must be renewed to remain valid, while a non-lapsing nomination does not expire, provided it meets the fund’s requirements. This ensures your intended beneficiaries receive the superannuation benefit as specified.
One of the key benefits is the clarity it provides for efficient benefit distribution without trustee intervention. This streamlined process minimises delays and reduces potential conflicts, which offers greater peace of mind for all parties involved.
The flexibility of non-binding nominations
A non-binding beneficiary nomination is a guideline for your superannuation fund trustee on who you’d prefer to receive your death benefits.
Unlike a binding nomination, the trustee has the discretion to consider your wishes but is not legally required to follow them. The trustee will factor in your nomination, the law and your dependents’ circumstances when distributing the benefits. Non-binding nominations typically don’t lapse, so any changes must be made manually to keep them up to date.
The main drawback of a non-binding nomination is that the trustee has discretion and is not required to follow your wishes. This can lead to disputes among beneficiaries, and this can potentially delay the distribution of benefits.
Talk to the superannuation experts
Choosing between binding and non-binding nominations is more than a procedural decision—it’s about shaping the legacy you leave behind. While binding nominations provide certainty, non-binding nominations offer convenience and flexibility, often requiring fewer formalities.
It’s important to review and update your nominations as life changes to ensure they align with your current intentions. Events like marriage, divorce, having children or losing a loved one can significantly impact who should benefit from your super.
For instance, you may no longer want to allocate 100% of your benefits to an ex-spouse if you now have multiple adult children who would benefit more from the financial support.
At First Financial, our team can assist with retirement planning, wealth building, superannuation advice and SMSF management. If you have questions about superannuation beneficiary nominations or want to start your wealth journey, contact us today.
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