Ask an Adviser - Binding and Non Binding Super Beneficiaries

Top answer provided by:

Helga Baxter

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The key difference between a ‘binding’ nomination and a ‘non-binding’ nomination is certainty. Certainty that your super funds will end up with the person or people you want to benefit. Upon your passing, your super fund is required to pay your benefits in the fund in accordance with the payment standards and governing rules of the fund. Who the benefits are paid to is ultimately a decision for the trustees of the fund.

By lodging a non-binding nomination with your super fund, you provide the trustees with guidance as to who you would prefer your death benefit be paid to. However, the trustee does not have to pay your death benefit to your preferred beneficiary. They are able to consider all relevant circumstances when deciding whom the benefit should be payable to.

By lodging a binding nomination with your super fund, the trustees of the fund no longer have discretion and must pay your death benefit to your chosen beneficiaries, so long as the nomination is valid. A valid nomination must be signed and dated by the super fund member, witnessed by 2 individuals who are not nominated as beneficiaries, specify the proportion of the benefit to be paid to each beneficiary and the nomination must be sufficiently clear and unambiguous for the trustees to act. Beneficiaries nominated via a binding nomination must be either dependents or the legal personal representative (estate) of the super fund member. A binding nomination must be reviewed every 3 years to ensure the nomination remains aligned with the super fund member’s wishes.

A third option that is available with some super funds is a non-lapsing nomination. A non-lapsing nomination ensures the super fund trustees must pay your death benefit to your preferred beneficiaries, in much the same way as a binding nomination except, as the name suggests, a non-lapsing nomination does not have the requirement to be reviewed every 3 years. Care must therefore be taken to ensure this type of nomination is regularly reviewed especially when personal circumstances or the wishes of the super fund member change. 

Whether or not tax is payable on the payment of a death benefit from a super fund depends on if the beneficiary is a dependent for tax purposes.

Dependents for tax purposes include a spouse, former spouse, child under age 18 or a child over age 18, if they are financially dependent upon the deceased.

If a beneficiary is a dependent, no tax is payable by the beneficiary on the total benefit. If a beneficiary is not a dependent, tax will be payable on a portion of the benefit (usually 15% plus 2% Medicare Levy on the taxable component of the benefit).

Usually tax is not payable by a beneficiary receiving other assets such as bank accounts, investment accounts, property etc. no matter whom the beneficiary is. However, should the beneficiary have a preference for receiving cash and therefore choose to sell an inherited asset, capital gains tax may be payable by either the beneficiary or the estate, reducing the benefit received.

While the Adviser Ratings Website facilitates the question and answer functionality, all such communications are between users and authorised financial advisers, of which Adviser Ratings has no affiliation. Adviser Ratings is not the advice provider and does not provide financial product advice and only provides information that is general in nature.

Article by:

Kellie from Goulburn in NSW

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