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The importance of Binding Death Benefit Nominations

2012-11-12

Did you know that by properly managing your superannuation Binding Death Benefit Nomination can offer tax benefits and asset planning? Pam Horton, Accredited Wills and Estates Specialist shares her insight below.

Superannuation is increasingly becoming the investment of choice for a lot of Australians.  If managed properly it offers tax benefits and asset planning.

Not everyone is aware that you can bind the Trustee of your superannuation fund to pay your death benefits to your nominated Dependant beneficiary or beneficiaries if you have signed a Binding Death Benefit Nomination form before two independent adult witnesses.

Dependant is defined by the Superannuation Industry (Supervision) Act 1993 (the 'Act') and, in summary, means a partner, spouse, child (including adopted or step child) of any age, or a person to whom a relationship of interdependency exists.

Like a Will, a Binding Death Benefit Nomination allows you to determine to whom your death benefits are distributed, the only difference being that the class of beneficiaries of your superannuation is limited to Dependants (as defined above) or your Legal Personal Representative.

If you have a Self Managed Superannuation Fund then you may have flexibility in that:

  1. your Binding Death Benefit Nomination can be non-lapsing (as opposed to lasting only 3 years in a retail or industry fund);
  2. you can bind the Trustee of the fund not only as to whom your death benefits shall be payable but also the manner of payment, such as by pension or lump sum (subject to compliance with the Act)

Since the release of Taxation Ruling 2011/D3 tax consequences may occur if you have a discretionary reversionary nomination of your superannuation pension as opposed to an auto-reversionary nomination.  To avoid these consequences you need to bind the Trustee as to the manner of payment of your death benefits.

To have the flexibility mentioned in 1 and 2 above, your Self Managed Superannuation Fund Trust Deed must expressly grant these powers.

Like your Will, we strongly recommend regular reviews of your Self Managed Superannuation Fund Trust Deed due to changes arising from legislation, taxation rulings, common law decisions plus changes in your life.

If you have any queries relating to this content please contact Pam Horton at phorton@richbenn.com.au.

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