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A non-binding death benefit nomination is an instruction given to a superannuation fund trustee that indicates who the member would like to receive their superannuation benefits upon their death. Unlike a binding nomination, which legally obligates the trustee to follow the member’s instructions, a non-binding nomination serves as a guide, giving the trustee flexibility in deciding how to distribute the benefits.

Here’s a closer look at what non-binding death benefit nominations entail, their advantages and disadvantages, and how they compare to binding nominations.

How Non-Binding Death Benefit Nominations Work

In a non-binding death benefit nomination, the super fund member nominates one or more beneficiaries they would like to receive their superannuation balance upon death. However, the trustee is not legally bound to follow this nomination; they can take it into consideration alongside other relevant factors to determine the most appropriate distribution of funds.

The trustee will typically consider:

The nominated beneficiaries.
The financial needs and relationships of potential dependents.
Any legal obligations or claims against the estate.

Eligible Beneficiaries in Non-Binding Nominations

Only certain people are eligible to receive superannuation benefits in Australia. Non-binding nominations must still comply with the legal criteria for eligible beneficiaries, which include:

Spouse: This includes de facto partners, but not necessarily divorced or separated spouses.
Children: Biological, adopted, or stepchildren, as well as adult children.
Financial Dependents: People who were financially dependent on the deceased.
Estate/Legal Representative: The member’s estate can be nominated, in which case the superannuation balance is paid into the estate and distributed according to the will.

Benefits of a Non-Binding Death Benefit Nomination

A non-binding death benefit nomination can provide certain advantages:

Flexibility for Trustees: Trustees have the discretion to assess the family’s circumstances at the time of death and make decisions accordingly. This can be beneficial if family relationships or financial needs have changed since the nomination was made.
Less Administrative Burden: Non-binding nominations do not need to be renewed every three years, unlike binding nominations in some super funds.
Accommodates Complex Family Situations: Trustees may use their discretion to make fair decisions in situations where there are dependents with special needs or when family dynamics have evolved.

Potential Disadvantages of Non-Binding Death Benefit Nominations

While a non-binding death benefit nomination offers flexibility, it also has potential drawbacks:

Uncertainty for Beneficiaries: Since the trustee has the discretion to decide on benefit distribution, there’s less certainty about who will receive the benefits.
Potential for Disputes: Discretionary decisions by trustees can lead to disputes among family members or potential beneficiaries.
Lack of Legal Obligation: Unlike a binding nomination, there’s no legal requirement for the trustee to follow the member’s wishes, which may lead to an outcome that differs from the member’s intent.

Non-Binding vs. Binding Death Benefit Nominations

Here’s a comparison of non-binding and binding nominations to highlight their differences:

FEATURE	NON-BINDING DEATH BENEFIT NOMINATION	BINDING DEATH BENEFIT NOMINATION
Trustee Obligation	Trustee has discretion, considers nomination as guidance	Trustee is legally bound to follow the nomination
Flexibility	Flexible, allows trustee to adjust based on current family circumstances	No flexibility; trustee must follow instructions exactly
Validity Period	Generally does not expire but may vary by fund	Usually expires every three years unless specified as non-lapsing
Certainty for Beneficiaries	Less certain, as trustee can choose a different distribution	High certainty, as trustee must follow nomination
Suitability	Beneficial for complex family situations or changing dynamics	Useful for ensuring specific individuals receive the benefit

When to Consider a Non-Binding Death Benefit Nomination

A non-binding nomination may be appropriate if:

You prefer flexibility for the trustee to adapt to changes in your family’s financial circumstances.
Your family situation is complex (e.g., you have dependents with varying needs, or blended family dynamics).
You are comfortable with giving the trustee discretion to make decisions.
You have a clear estate plan or will that complements the nomination.

Reviewing and Updating Non-Binding Nominations

Although non-binding nominations don’t have to be renewed regularly, it’s wise to review them periodically and update them if circumstances change. This ensures that the nomination aligns with your current intentions and family situation. Consider reviewing your nomination:

After major life events (e.g., marriage, divorce, birth of a child).
If your financial dependents change.
If you experience changes in family relationships that might affect your preferences.

Non-Binding Nominations and Estate Planning

A non-binding death benefit nomination can complement your broader estate plan. Since superannuation benefits do not automatically form part of your estate, directing these benefits through a non-binding nomination (potentially to your estate) allows you to align super benefits with your will’s instructions.

For example:

Directing Benefits to Your Estate: If you wish to distribute your superannuation benefits according to your will, nominating your estate or legal representative as the beneficiary can help integrate super benefits into your estate plan.
Aligning with Guardianship and Trusts: For dependents with special needs or young children, coordinating non-binding nominations with trusts or guardianship provisions in your estate plan can provide additional financial security.

Seeking Professional Advice

Navigating death benefit nominations and ensuring they align with your overall estate planning strategy can be complex. Seeking guidance from a qualified financial adviser or estate planning lawyer can help you:

Clarify Nomination Options: Determine if a non-binding or binding nomination better suits your family and financial situation.
Minimise Potential Disputes: Reduce the risk of conflicts by understanding the legal and tax implications of different nomination types.
Coordinate with Super Fund Requirements: Each superannuation fund has specific rules regarding nominations, so an adviser can ensure your nomination meets these requirements.

Conclusion

A non-binding death benefit nomination in superannuation allows for flexibility in how death benefits are distributed, which can be advantageous in complex family situations or when financial needs may change over time. However, it also leaves the final decision to the trustee’s discretion, which may not provide as much certainty as a binding nomination. By understanding how non-binding nominations work and reviewing them in line with your broader estate plan, you can ensure that your superannuation benefits are distributed according to your wishes, providing financial security for those you care about most.