What is the difference between binding and non-binding nominations for superannuation death benefits?

Quick answer

‘Death Benefits’ are the combined balance of your life insurance and superannuation. Following a person’s death, these benefits are distributed according to the type of nomination made: binding or non-binding. In some circumstances, there is no nomination.

A valid binding nomination ensures the deceased’s nominated beneficiaries will receive their death benefits. Without a binding nomination, the super fund trustee will distribute the death benefits based on the needs of the deceased’s dependants and the relevant law.

You can read more about nominations and death benefits below.

In depth answer

When a person passes away, their life insurance and superannuation balances become collectively known as their ‘death benefits.’

Your death benefits are likely one of your largest assets. But unlike your home and savings, death benefits are not automatically included in your will. Instead, they’re distributed to your beneficiaries according to your ‘nominations’.

These beneficiaries will usually be ‘dependants’, such as:

  • Spouses
  • De facto partners
  • Children of any age
  • People the deceased shared an interdependent relationship with.

The Australian Taxation Office (ATO) considers an interdependent relationship to be any close personal relationship. You must have lived together and provided financial support or domestic care. Exceptions to these requirements include where a person cannot provide certain support due to a physical, intellectual or psychological disability.

If you don’t have any dependents, the money is generally paid to your estate.

The exact nature of this distribution, as well as the trustee’s role, varies according to what kind of nomination you’ve made: binding, non-binding, or none.

What is a binding nomination?

If beneficiaries are nominated by the deceased they are called ‘binding nominations’. These nominations must be made according to ATO requirements, including that:

  • The beneficiaries are dependants of the deceased or their legal representation (the executor of the estate), and
  • The binding nomination form is properly signed and witnessed, and
  • The binding nominations dispense with 100% of the deceased’s death benefits balance.

If any of these requirements are unmet, the nomination is invalid.

When discussing binding nominations, we must distinguish between lapsing and non-lapsing binding nominations.

Non-lapsing nominations are permanent unless you change or review them. These are a relatively recent development and not all funds offer a non-lapsing option. They are most common in self-managed super funds.

Lapsing nominations are only valid for up to three years. After this time, you must renew the nomination otherwise it becomes a non-binding nomination. If you opt for a lapsing binding nomination, it’s your responsibility to ensure its renewal and validity.

Not all super funds offer binding nominations, and those that do may not offer non-lapsing nominations. Your super fund can provide a full list of your nomination options.

What is a non-binding nomination?

A ‘non-binding nomination’ is where you have given the trustee an indication of your preferences, but the trustee is ultimately responsible for distributing the death benefits. This most commonly occurs where a binding nomination has lapsed.

The trustee has more authority under a non-binding nomination. While they may be swayed by your nominations, they are not obliged to follow them. The trustee will consider the relevant law and the needs of each of your dependants before distributing your death benefits.

What happens if I make no nomination?

If a person passes away without nominating beneficiaries, the trustee distributes their death benefits. They will do so according to the relevant law and the needs of the deceased’s dependants.

The trustee may use their own judgement to distribute assets to some or all of the people who financially depended on the deceased.

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