Why Would You Need A Binding Death Benefit Nomination?

Your superannuation does not automatically form part of your estate plan, and separate steps are required to control how it is distributed after your death. Death benefit nominations play a key role in directing your super fund on who should receive your super and how the trustee makes that decision. With both binding and non-binding options available, understanding how each operates is important to ensure your intentions are properly considered.

What is a Binding Death Benefit Nomination?

A binding death benefit nomination is a written direction you give to your super fund that tells them exactly who your super is to be paid to when you die. The nomination legally requires the trustee to follow your instructions, provided all information is valid and lawful.
Most binding death benefit nominations in large super funds expire after three years unless the fund allows a non-lapsing option. The exact rules depend on the super fund, and different rules apply to self-managed super funds.

How it works:

• You nominate one or more beneficiaries
• You state the percentage of each beneficiary
• When you pass away, the trustee must pay your super according to your binding nomination, as long as it is valid, up to date, and meets the fund’s rules

Under superannuation law, your superannuation can generally be paid to your spouse, children, certain dependants, or your legal personal representative (your estate).

What is a Non-Binding Death Benefit Nomination?

A non-binding death benefit nomination is a nomination you make with your superannuation fund that guides the trustee, but does not legally require them to follow it when deciding who receives your super.

Non-binding death benefit nominations usually do not expire, but this can vary depending on the rules of your super fund

How it works:

• You nominate one or more preferred beneficiaries
• You may state the percentage you would like each to receive
• When you pass away, the trustee reviews your nomination alongside the circumstances at the time of death
• Your trustee decides how your super is distributed, taking your nomination into account

Under superannuation law, the trustee may pay your super to your spouse, children, those financially dependent on you or your estate.

Binding Nomination	Non-Binding Nomination
The trustee must follow it	Trustee has discretion
Provides certainty	Provides flexibility
Expires (usually after 3 years)	Does not expire
Higher risk if outdated	Lower risk if circumstances change

Advantages of Binding Death Benefit Nominations

Certainty and Control:
Where a binding death benefit nomination is valid and current, the trustee must generally follow it and has no discretion over who receives the superannuation benefit. This has been confirmed by Australian courts, including in cases such as Wooster v Morris.

Fewer Disputes:
A valid binding death benefit nomination removes the trustee’s discretion, which limits competing claims and makes sure your super is paid according to your wishes.

Aligns with Your Estate Planning:
A binding nomination allows your super to be coordinated within your broader estate plan. This is particularly important where you want superannuation paid to specific people or through your estate.

Protects against Complex Family Arrangements:
For blended families or where relationships are strained, a binding nomination prevents the trustee from reallocating benefits in a way that does not reflect your wishes.

Disadvantages of a Binding Death Benefit Nomination

Risk of becoming invalid:
Binding nominations must meet strict legal and fund-specific requirements. If a nomination is not completed in accordance with the fund’s rules, it may be invalid and not binding on the trustee. If there is any uncertainty, seeking assistance from an estate planning lawyer can help ensure the nomination is properly prepared and effective.

Ongoing renewal:
Binding nominations typically expire after three years unless the fund offers a non-lapsing option. If a nomination is not renewed in time, it may lapse and leave the trustee with full discretion. Renewals are subject to the rules of the super fund.

Limited Flexibility:
A binding nomination does not allow the trustee to respond if there is a change in your circumstances. If relationships, dependency or financial needs change and the nomination is not updated, the outcome may no longer reflect your intentions.

Advantages of Non-binding Nominations

Flexibility:
A non-binding nomination allows the trustee to consider your circumstances at the time of death. This can be beneficial where relationships, financial dependency, or personal situations may change.

No Expiry Period:
Non-binding nominations do not generally expire after three years. This removes the need for regular renewal and reduces the risk of a nomination expiring.

Suitable for Simple Family Arrangements:
For those with straightforward family structures with minimal risk of dispute, a non-binding nomination is simpler and does not need to be renewed.

Allows for changing dependency:
Where dependency is likely to change, such as adult children becoming financially independent or new dependants emerging, a non-binding nomination allows the trustee to take these changes into account when determining how your superannuation is distributed.

Disadvantages of a Non-Binding Death Benefit Nomination

Greater Risk of Disputes
Because the trustee must assess competing claims and circumstances, non-binding nominations can increase the likelihood of disagreements between beneficiaries, which may delay payment.

Trustee Discretion Overrides Intentions
Ultimately, the trustee is not bound by your nomination. Even where your wishes are clearly expressed, they may be outweighed by other considerations under superannuation law.

Lack of Certainty
With a non-binding death benefit nomination, the trustee is not required to follow your instructions. While your wishes are considered, the final decision rests with the trustee.

Slower payment of benefits
Trustees may need to investigate dependency, financial circumstances, and competing claims. This process can take time and may delay payment to beneficiaries.

Which Should You Choose?

The choice of which death benefit nomination is ultimately yours and depends on your personal circumstances and how much certainty you want over the distribution of your superannuation.

A binding death benefit nomination may be appropriate where certainty is critical, such as where there are blended families, strained relationships, or a clear intention for your super to be paid to specific people or through your estate.

A non-binding death benefit nomination may be suitable where flexibility is preferred. It allows the trustee to consider your circumstances at the time of death, which can be beneficial where dependency or family arrangements are likely to change.

Because superannuation does not automatically form part of your estate, choosing the right nomination is an important part of estate planning. If you need advice, be sure to contact one of our professional estate lawyers today.