A binding nomination overrides the Trustee’s discretion to pay out a death benefit to your dependants as they see fit. The binding nomination requires that the Trustee act in accordance with your wishes. Under section 59(1A) of the Superannuation Industry Supervision Act, 1993 (“SISA”), a binding nomination is not compulsory for a Self-Managed Superannuation Fund (“SMSF”), but if you do have one in your SMSF, then the Trustees of your SMSF must follow the instructions as stated in the binding nomination.
For a nomination to be binding, it is necessary to nominate that your superannuation death benefit is to be paid to either your dependants or to your Estate in accordance with Regulation 6.17A of the Superannuation Industry (Supervision) Regulation 1994. If a binding nomination is made and the Trustees of your SMSF must pay your death benefits to your Estate, then the Executor of your Estate will pay out your superannuation savings according to the terms of your Will.
A binding nomination is valid when two witnesses (aged 18 years or over) sign the nomination document confirming that the contents of the document reflect your wishes. You cannot use witnesses who may benefit from your nomination.
Normally, a binding nomination has to be renewed every three years or it will lapse. As binding nominations are not compulsory in a SMSF, SMSF’s are able to offer non-lapsing or lapsing binding nominations, depending on the SMSF’s Trust Deed. However, if you divorce, remarry or have children, you may need to make sure you update your nominated beneficiaries to reflect your new circumstances.
If no binding nomination is made, then the Trustees of your SMSF will use their discretion to distribute your superannuation savings. Even if you do have a binding nomination, if the nomination form is invalid, then your death benefit will be paid using the Trustee’s discretionary powers by the remaining Trustees of your SMSF.
If the Trust Deed of an SMSF allows for payment of a death benefit in the event of a member’s death, then the death benefit can be paid either to the member’s dependants or to their legal personal representative. If the member does not have dependants, then their death benefit can be paid to their Estate. People who are not classified as dependants of the deceased member can receive a death benefit paid from the member’s Estate.
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