- An SMSF member may be able to pick who receives their super balance if they die with a binding death benefit nomination.
- Benefits can be paid as a lump sum or a steady income stream, depending on the beneficiary.
- A non-binding nomination means the trustee still has discretion to choose who receives the benefits.
Depending on the deed of your SMSF, you may be able to nominate which of your eligible beneficiaries to receive your super if you die.
What is a binding death benefit nomination?
A binding death benefit nomination means picking the person/s who'll get your superannuation benefits if you die. It's different from a non-binding nomination, where the trustee of the fund can use their discretion to decide which dependant or dependants to pay the death benefit to.
If the nominated death benefit recipient is a dependant of the deceased, the benefit can be paid either as a lump sum or as a steady income stream.
"A death benefit is the payment of a member’s super savings to a nominated beneficiary, if the member dies. A member can use a death benefit nomination form - if the fund’s trust deed allows it. The form identifies who to pay their death benefit to and in what proportion. The nomination can be either:
- binding - directing the trustees to pay the death benefit to a legal personal representative or dependant, or
- non-binding - notifying the trustees of the member’s preferred beneficiaries, leaving the trustees to make the final decision." -ATO
If the recipient is not a dependent of the deceased, the death benefit must be paid as a lump sum.
Who is a dependant?
A person is a dependant of a deceased member under superannuation law if, at the time of death, that person was:
The deceased's spouse or de facto spouse.
A child of the deceased
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.
Savings.com.au's two cents
Even if you have already done up a will, your superannuation balance may not automatically be included as part of your estate. You might need to make a seperate death benefit nomination, either binding or non-binding, to direct who receives your super balance, otherwise the trustee will decide.
How are dependants paid?
Benefits paid as a lump sum are sometimes tax-free if paid to a dependant, while 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 ATO guidance will help you navigate the process.
See also:
Frequently asked questions
Does a binding death benefit nomination expire?
Unlike typical super funds, a binding death benefit nomination doesn't automatically expire for an SMSF. It depends on the trust deed, which dictates whether binding nominations are allowed and if they expire.
How do you set up a BDBN?
You can find sample nomination forms online, but like with most SMSF technicalities it's generally better to get a lawyer to set up a binding death benefit nomination rather than doing it yourself.
Is there any downside to a BDBN?
Depending on the trust deed, a binding death benefit nomination might cause issues if your circumstances change between when you make the nomination and your death. For example, you might have nominated your first child, but have had two more children since making the nomination. In that case, a non-binding nomination may be preferable, since the trustee will be able to use discretion and split the benefits between all three kids.
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