Binding death benefit nomination for SMSF: what to know

author-avatar By on September 22, 2021
Binding death benefit nomination for SMSF: what to know

Choosing a Self Managed Super Fund (SMSF) can be a huge step for any Aussie in taking control of their own Superannuation, but one important step is to set up your nomination in case of your passing.

When setting up an SMSF, nominating your death benefit will determine what happens should you pass.


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Looking to take control of your retirement? This table below features SMSF loans with some of the most competitive interest rates on the market.

Lender
Advertised rate Comparison rate Monthly repayment Rate TypeOffsetRedrawOngoing FeeUpfront FeesLVRLump Sum RepaymentAdditional RepaymentsPre-approval
VariableMore details
SELF MANAGED SUPER FUND LOAN

SMSF 80

  • Easy refinance process
  • No application fee and no settlement fee
  • No monthly, annual or ongoing fees
SELF MANAGED SUPER FUND LOAN

SMSF 80

  • Easy refinance process
  • No application fee and no settlement fee
  • No monthly, annual or ongoing fees
FixedMore details

SMSF 80 Fixed 5 Years (Purchase) (New Customer)

VariableMore details

Liberty SuperCredit SMSF (LVR < 60%)

Base criteria of: a $400,000 loan amount, variable, fixed, principal and interest (P&I) home loans with an LVR (loan-to-value) ratio of at least 80%. However, the ‘Compare Home Loans’ table allows for calculations to made on variables as selected and input by the user. All products will list the LVR with the product and rate which are clearly published on the Product Provider’s web site. Monthly repayments, once the base criteria are altered by the user, will be based on the selected products’ advertised rates and determined by the loan amount, repayment type, loan term and LVR as input by the user/you. *Comparison rate is based on a loan of $150,000 over a term of 25 years. Please note the comparison rate only applies to the examples given Rates correct as of October 23, 2021. View disclaimer.


What is a binding death benefit nomination?

When a self-managed super fund (SMSF) member dies, the SMSF generally pays a death benefit to a dependant or other beneficiary of the deceased.

If the recipient is a dependant of the deceased, the death benefit can be paid as a lump sum or as a steady income stream. The income stream can be new or a continuation of an existing stream.

The ATO states: SMSF members can nominate who will get their benefits when they die. A binding death benefit nomination directs the trustee to pay the benefit to a legal personal representative or a dependant.

If the recipient is not a dependant of the deceased, the death benefit must be paid as a lump sum.

Who is a dependant?

To understand how death benefits can be paid you need to know who is a dependant.

A person is a dependant of a deceased member if, at the time of death, that person was:

  • The deceased's spouse.

  • A child of the deceased – this includes a child younger than 18 years, or a child who was financially dependent on the deceased and younger than 25 years, or if the child has a disability.

  • In an interdependency relationship with the deceased – this is a close personal relationship between two people who live together, where one or both provides for the financial, domestic and personal support of the other.

How are dependants paid?

Benefits paid as a lump sum to a dependant are tax-free but a lump sum paid to a non-dependant will be taxed.

Lump sums can be paid in cash or non-cash form - for example, shares or property.

The trustee may need to withhold tax from a death benefit. Working this out can be complex and will depend on a number of factors. If a trustee has to withhold tax, they must register for PAYG withholding and complete some other ATO forms.

Members of the SMSF may have made a death benefit nomination asking the SMSF trustees to pay their death benefit to their nominated beneficiaries. While having regard to the member's nomination, the SMSF trustees must ensure the nominated beneficiaries are entitled to receive death benefits under the trust deed and super law.

If the deceased member did not nominate a beneficiary, the trustee may pay it to the deceased's estate for the executor to distribute it according to the instructions in their will.

It's wise to plan ahead. If there is a dispute over the payment of death benefits which can't be resolved, it may lead to costly court action. Seeking out professional advice and referring to the ATO website will help you understand the process.

See also:


Image by Vidar Nordli-Mathisen via Unsplash

Disclaimers

The entire market was not considered in selecting the above products. Rather, a cut-down portion of the market has been considered which includes retail products from at least the big four banks, the top 10 customer-owned institutions and Australia’s larger non-banks:

  • The big four banks are: ANZ, CBA, NAB and Westpac
  • The top 10 customer-owned Institutions are the ten largest mutual banks, credit unions and building societies in Australia, ranked by assets under management in November 2020. They are (in descending order): Great Southern Bank, Newcastle Permanent, Heritage Bank, Peoples’ Choice Credit Union, Teachers Mutual Bank, Greater Bank, IMB Bank, Beyond Bank, Bank Australia and P&N Bank.
  • The larger non-bank lenders are those who (in 2020) has more than $9 billion in Australian funded loans and advances. These groups are: Resimac, Pepper, Liberty and Firstmac.
  • If you click on a product link and you are referred to a Product or Service Provider’s web page, it is highly likely that a commercial relationship exists between that Product or Service Provider and Savings.com.au

Some providers' products may not be available in all states. To be considered, the product and rate must be clearly published on the product provider's web site.

In the interests of full disclosure, Savings.com.au, Performance Drive and Loans.com.au are part of the Firstmac Group. To read about how Savings.com.au manages potential conflicts of interest, along with how we get paid, please click through onto the web site links.

*Comparison rate is based on a loan of $150,000 over a term of 25 years. Please note the comparison rate only applies to the examples given. Different loan amounts and terms will result in different comparison rates. Costs such as redraw fees and costs savings, such as fee waivers, are not included in the comparison rate but may influence the cost of the loan.

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Aaron joined Savings.com.au in 2021. He is a finance journalist with a keen interest in property, the share market, and improving financial literacy in young Australians.

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