Double entrenching binding nominations

'Binding' nominations may sometimes be removed. 

In a recent post, we touched on the importance of reviewing a trust deed before making any superannuation death benefit payments.

The 'read the deed' mantra, which is so often used in the context of family trusts, is of similar importance in relation to self managed superannuation funds.

One particular provision to be aware of in this regard is that, even if a nomination (which appears to be binding) is embedded under the deed, unless the provision of that deed has a prohibition against amendment, the intentions of the parties may not in fact be achieved.

For example, the remaining trustees after death could elect to vary the deed (and effectively remove the binding nomination) before ultimately making a death benefit payment.

Until next week.

Death benefit nominations – read the deed

Read the deed.

Following on from recent posts concerning superannuation death benefit payments, I was reminded this week of the absolute importance of reading the superannuation trust deed before making any death benefit payment.

It is becoming more and more regular to see many people, as part of their overall estate plan, embedding their required superannuation distribution provisions into the superannuation trust deed. Where this is done, the fact that there might be other nominations, or even provisions in a person’s will, not be of any effect – rather the terms of the deed must be followed.

In a future post, I will touch on a related issue concerning binding nominations that are entrenched in superannuation trust deeds.

Until next week.

Receipt of superannuation death benefits

Following a recent post, I had a number of enquiries, and one particular adviser raised an issue with me which (as she flagged) is often overlooked.

The particular issue relates to the payment of superannuation benefits on death. The legislation requires (and there have been cases supporting this) that the recipient of any death benefit must be alive on the date of the payment themselves – in other words, if the recipient is no longer living at the date the payment is ultimately due to be made, then neither they (nor their estate) will be entitled to receive it.

There are a number of ways to minimise the impact of this rule, however the steps must always be taken as part of the overall estate plan.

Until next week.

Image credit: SalFalko via Flickr

Superannuation and binding death benefit nominations (BDBN)

A couple of weeks ago there was a post in relation to superannuation nominations.

As mentioned in that post, where there is a valid BDBN, the trustee has no discretion to pay death benefits other than in accordance with the notice.

Based on recent client situations we have seen, a few critical points to remember in this area include the following:

1. If a member’s circumstances change and they have failed to update their BDBN, it will, subject in some situations to automatic lapsing (for example, every three years), continue to be binding on the trustee.

2. The trust deed for the superannuation fund must allow for a BDBN to be given to the trustee of the fund – even some recently set up deeds do not always have such a provision.

3. Unless specifically provided for in the deed, a BDBN will often need to be ‘refreshed’ every three years. An alternate approach is to update the trust deed for the fund to ‘hardwire’ the nomination into the deed, avoiding the requirement to regularly refresh the nomination.

Until next week.

Superannuation death benefits

The way in which members of a super fund can direct payment of benefits on death come up in virtually every estate planning exercise.

Essentially a member of a superannuation fund has three main choices for specifying what should happen in relation to their superannuation entitlements on death (assuming the proposed recipient is entitled at law), namely:

1. no nomination - the trustee is bound to deal with a member’s benefit in their best interests. The trustee will normally make enquiries as to the member’s family situation, who their dependants are, the provisions of their will and other relevant circumstances before making a decision;

2. a non-binding nomination - the trustee is not bound by a non binding notice and has an absolute discretion as to where the death benefit will be paid. Where a non binding notice is made, it should be taken into account as part of any decision by the trustee as to how to distribute the benefit; or

3. a binding nomination - the trustee is obliged to distribute a member’s death benefits in accordance with a valid binding notice.

Binding nominations have the potential to allow members to protect their death benefits from disputes, as where there is no nomination or a non binding one, a trustee's decison can be challeneged. Binding nominations can also be used as part of a member’s overall estate plan, including, for example, as part of a tax planning strategy for infant children or an asset protection strategy for adult children.

In future posts we will look at other aspects of binding nominations, including non lapsing nominations.

Until next week.