Binding death benefit nominations
Everything an SMSF trustee should know about compliance.
Where the trust deed of a self-managed superannuation fund allows, members can lodge a binding death benefit nomination form with themselves as trustees.
You might ask, if all members of the SMSF are trustees, what is the point of this? There can be a situation where, in the absence of a binding death benefit nomination, the remaining trustee/members can pay the benefits to themselves and not to those people the deceased member wanted.
There is a celebrated legal case involving an SMSF that not only demonstrates the necessity of having binding death benefit nominations, but also to make sure the trusteeship upon the death of the last member passes to someone that will respect the wishes of the deceased member.
In the case in question an SMSF was set up by a husband and wife. After the wife died the couple's daughters was appointed as the second trustee. The father then completed a non-binding death benefit nomination stipulating that the benefits were to be paid equally between his daughter and son.
After the death of the father the daughter appointed her husband as the second trustee and then paid the entire death benefit to herself. The son challenged the ability of his sister to take all of the superannuation but lost the case and received no benefit from the fund.
For a binding death benefit nomination to force the trustees of an SMSF to pay the benefits to the nominated person or people, it must be in writing and must meet the following conditions:
- it must be signed and dated by the member in the presence of two adult witnesses that are not named as beneficiaries of the nomination
- the notice must contain a declaration by the witnesses that states it was signed by the member in their presence
- each person to benefit from the nomination must be a legal personal representative or dependant of the member
- the allocation of the member's benefit to the nominated beneficiaries is clear
- the notice is not older than three years at the date of the member's death (Unless it is an SMSF).
Binding death benefit nominations can be withdrawn or altered by a member at any time. Trustee/Members of an SMSF who want to ensure their wishes are acted on after they die should ensure they put in place a binding death benefit nomination.
There is some controversy over whether the nomination can be a non-lapsing binding death benefit nomination or a nomination that must be redone every three years. The ATO as umpire for SMSFs has stated it will accept non-lapsing nominations. To be on the safe side trustees should check with the fund's accountant or auditor to confirm what will work for their fund.
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