What is a Death Benefit Nomination? And how to save on TAX!
During our working life we contribute and maintain our superannuation funds for the preservation of our retired life and to see that our loved ones are looked after when we have gone. For your wishes to be followed, a Binding Death nomination should be submitted to your Superannuation Fund to ensure your beneficiaries are not going to face a large tax bill as a result of your death benefit payment.
The best method to ensure that your Superannuation benefits are paid to your nominated beneficiaries and minimise the tax impact to them, is to have a Death Benefit nomination and for it to be binding! However not all funds allow for them!
A Death Benefit nomination is a request to the trustee of the Superannuation fund to pay your death benefit to the beneficiaries or eligible person(s) according to your instructions. These last for a period of 3years. Some public offer Superannuation funds only allow you to nominate your beneficiaries, and only the proportion of your death benefit to be allocated. If the Trustee makes a payment to a non-dependant the recipient will be taxed at marginal rates! A binding nomination is valid for at least 3 years and gives the Trustee no discretion how your benefits are paid!
So, who can you nominate?
A Death Benefit nomination will only be paid to your dependants as defined in the SIS Act. These include your Spouse, children and those that are financially dependent.
All children are included in the SIS Act definition, regardless of age, compared to Tax Law that allows for dependent children to be up to the age of 18. It doesn’t include grandchildren! – this would need to be addressed in your WILL.
A Binding nomination form allows for a broader range of scenarios, with multiple components, and allows you to nominate a non-dependant, your estate or legal representative as a beneficiary. This is the most powerful way to save tax on the payment of your death benefit to your beneficiary. A Binding nomination cannot be challenged unless it is found to be invalid.
The Trust Deed
If you have a Self-Managed Superannuation fund, the Trust Deed can be written to accept a binding nomination form. This should be regularly checked and kept up to date, and can include your wish to remove the Trustee’s discretion and name a recipient.
Superannuation is not part of your estate, unless the Trustee pays the benefit to your estate. If your wishes are not expressed correctly in a Will or if you don’t have a Will, the benefit paid to your intended beneficiary may result in them facing a large tax bill.
If you would like to discuss your Superannuation nominations further, please contact our office. This article is general and not advice, your individual circumstance needs to be considered for specific advice.