Binding Death Nomination

A binding death benefit nomination is a legal direction to your super fund telling it exactly who receives your super when you die, and in what proportions. Super is not covered by your will - the fund is legally required to follow a valid binding nomination, which is what makes it binding. The nomination must be in writing, signed and witnessed by two adults, and re-signed every three years to stay valid. Some funds offer non-lapsing nominations that stay valid until you change them.

The people you can nominate are the super law's definition of dependants: your spouse or de facto partner, your children of any age, anyone who was financially dependent on you, and anyone in an interdependent relationship with you. You can also nominate your legal personal representative - your estate - which sends the money through the will instead. Nominating someone outside these categories, such as a sibling or a friend with no financial dependency, is not binding, and the trustee treats it as advice.

The mechanics are a form with legal force. You complete the fund's binding death nomination form, name the beneficiaries and proportions, sign it in front of two adult witnesses who also sign, and lodge it with the fund. The nomination binds the trustee: on a valid claim, the fund must pay the named people in the named proportions. The three-year clock starts at signing, and the nomination lapses silently at the end of it unless it is re-signed.

The tax follows the beneficiary. Death benefits paid to dependants - a spouse, children, financial dependants - are tax-free regardless of the components. Paid to a non-dependant, such as a sibling or a parent without financial dependency, the taxable component is taxed at up to 15 percent, and the tax-free component stays tax-free. On a $600,000 benefit that is entirely taxable, a non-dependant pays up to roughly $90,000 that a spouse would not.

The lapse is where the discretion returns. An expired nomination means the trustee decides who receives the benefit, weighing the claimants and the relationship evidence - a process that can take months to years and does not have to follow your will. SMSF deeds can be drafted with non-lapsing nominations, and some retail and industry funds offer them. Checking the expiry date is the maintenance the form requires.

For an Australian reader, the binding nomination is the only document that guarantees who receives what is often the second-largest asset after the family home. The insurance inside super entry covers the life cover that often sits on top of the balance. The account-based pension entry covers reversionary pensions, which continue to a nominated beneficiary. The tax difference between dependants and non-dependants is worth up to 15 percent of the taxable component.

A colleague named Brent (yes, that Brent) signed a binding nomination at 28, changed funds twice since, and assumed his will 'sorted everything out'. The nomination lapsed with the old fund, and super does not follow a will. His beneficiary paperwork is three funds out of date. The highest-leverage thing most Australians can do is check the binding nomination and its expiry date on every super account. The form is five minutes, and the alternative is the trustee's discretion.