What is a non-binding beneficiary in superannuation?
A non-binding beneficiary is a the person that you would like to receive your superannuation balance (and any insurance benefits within super) upon your death.
A person becomes a non-binding beneficiary of your superannuation by you submitting a beneficiary nomination form to the trustee of your superannuation fund.
The significant term of a non-binding beneficiary is the word non-binding.
Non-binding means that, despite notifying the trustee of your super of who you would like the beneficiary to be, the ultimate discretion remains with the trustee at the time of your death.
The alternative to a non-binding superannuation death benefit nomination is a binding death benefit nomination.
Non-Binding vs Binding Death Benefit Nomination
As mentioned above, a non-binding nomination is where you notify the trustee of your superannuation fund of who you would like your superannuation death benefits paid to in the event of your death, while leaving discretion with the trustee at such time.
A binding nomination is where you inform the trustee of who you would like your superannuation death benefits paid to in the event of your death and making your decision binding on the trustee, leaving the trustee with no discretion.
Non-Binding Death Benefit Nomination Advantages & Disadvantages
The advantage of a non-binding death benefit nomination is that the trustee of your superannuation account can consider the nomination that you have made when deciding who to pay your superannuation death benefits to, but can use discretion, after considering your relationships at the actual time of your death.
This can be particularly useful in a situation where you made a non-binding nomination years before your death that you may have forgotten about and your preferred beneficiary had changed by the time of your death due to changes in relationships, but you had not remembered to update your superannuation nomination.
The disadvantage of a non-binding death benefit nomination is that it provides you with no certainty as to who will receive your superannuation balance and any insurances proceeds within super when you pass away, because the trustee will decide who your benefits are paid to at the time of your death given your relationships at such time, taking into account the person or people you have nominated in your non-binding nomination.
Binding Death Benefit Nomination Advantages & Disadvantages
The advantage of a binding death benefit nomination is that it gives you comfort in knowing who your superannuation and any insurances within super will be paid to when you die.
The trustee has no discretion and must pay your benefits in accordance with your nomination.
The disadvantages of a binding death benefit nomination is that your relationships may change between when you make the binding nomination and when you pass away and you might forget to update the trustee with a new nomination.
This can result in the wrong person receiving your death benefits due to the change in your relationships.
A binding death benefit nomination does not impact how reversionary pension death benefits are paid.
Reversionary pensions seamlessly transfer to the reversionary beneficiary upon death of the original pension member.
The benefit of a reversionary pension is that it will not count towards the beneficiary’s transfer balance cap for the first 12-months after reverting.
Death Benefit Nomination Expiry
A non-binding nomination generally has no expiry date once made. It can only be replaced by a new non-binding nomination being made which replaces any previous nominations made.
A binding nomination will often have an expiry of three years before it needs to be updated again. This is to protect you against changes in relationships. In this case, if it is not updated after the three years, there will be no death benefit nomination associated with your superannuation account until a new nomination is made.
A non-lapsing binding nomination is a binding nomination without a three year expiry date. This means that the binding nomination will remain in place indefinitely until replaced with a new nomination.
All superannuation funds offer non-binding nominations, but only some offer binding nominations and even fewer offer non-lapsing binding nominations.
You should contact your superannuation fund or read the superannuation Trust Deed (the rules of the super fund) to see the type of death benefit nominations available to you as a member.
Superannuation Beneficiary Rules
Not anyone can be a binding or non-binding beneficiary in super.
You are limited to the type of people that you can nominate in any superannuation death benefit nomination form. Under superannuation rules, a beneficiary of your superannuation can only include:
- Your spouse or de facto spouse
- Your child (any age)
- A person in an interdependency relationship with you; this is a close personal relationship between two people who live together, where one or both of you provide financial, domestic and personal support to the other.
A beneficiary of superannuation does not include parents, unless they fall under the category of a person that you are in an interdependency relationship with at the time of your death.
Specific legislation and the legal framework surrounding superannuation death benefit nominations can be found here.
Superannuation Death Benefits Tax
The tax payable by the recipient of your superannuation death benefits (including insurances) will be determined by the person who receives your benefits (spouse, child under 18, child over 18, etc), the form in which the benefits are received (lump sum or income stream), and the tax components of your member balance (tax-free, taxable (taxed) and taxable (untaxed)).