Death Benefit Nomination

SMSF Death Benefits: binding nominations, non-binding nominations, and "permanent" binding agreements

Cleardocs enables you to create, replace or confirm an SMSF member's death benefit arrangements, through:

• binding death benefit nominations
• non-binding death benefit nominations; or
• death benefit agreements $71.50 (inc. GST).

The rest of this page describes each of these document packages. It is the same for each package.

The difference between Death Benefit Nominations and Death Benefit Agreements

The key differences between Death Benefit Nominations and Death Benefit Agreements are shown in this table

Option	Binding or non-binding	Expiring or "permanent"
Death Benefit Nomination	Member chooses	A non-binding Nomination last until revoked or replaced A binding nomination expires by law after 3 years. (There is some controversy about this point. You can read an article here by our lawyers at Maddocks about why they believe the three year limit applies.)
Death Benefit Agreement	Always binding	Always permanent until the member revokes or replaces the Agreement

As always, the Cleardocs documents for death benefit nominations (binding and non-binding) and death benefit agreements are signed-off by our lawyers at Maddocks.

Cleardocs Deed required for Death Benefit Agreements

To create a new Death Benefit Agreement, the fund needs to have a Cleardocs deed, which was created or updated on or after 4 May 2009. If the SMSF currently:

• has a Cleardocs deed, you can check which version it has by logging in at Cleardocs and clicking the light blue "Version X of Y" button beside the relevant SMSF in your list of documents; — remember to look for the relevant SMSF in your list of SMSF set ups, SMSF deed updates and SMSF change of trustees; or
• does not have a Cleardocs deed, then you can update it to a Cleardocs deed for $99 online

(For any SMSF's set up through Cleardocs, you receive Death Benefit Nominations or Agreements with the original package of documents you create.)

Information only

Below, we set out some considerations in relation to death benefit nominations (binding or non-binding) and agreements. However, before you decide to do anything in relation to either, you should get legal, financial or other advice. We cannot give you that advice as we do not know the SMSF's or the member's situation. You need to remember that the summary below is for information purposes only.

When are Cleardocs death benefit arrangement documents useful?

The Cleardocs documents for SMSF death benefit arrangements are useful:

• for any old SMSFs for which the members have not completed death benefit arrangements;
• for members who want to put in place a binding agreement that will not expire unless the member wants to make a change; and
• for any members for which existing arrangements may be either out of date or expired. Remember, the law says that after 3 years, a binding death benefit nomination expires if it is not confirmed. After it expires, the other trustees (or other directors of the trustee company) are free to distribute the relevant money any way they like (that is allowed under the fund's deed and superannuation law) — potentially, even to themselves.

FREE marketing letter about SMSF death benefit arrangements

To help you explain to your clients the need for them to consider creating, replacing or confirming the members' death benefit arrangements, you can use the Cleardocs draft marketing letter available here. The summary in that draft letter is for information purposes only. We are not allowed to give advice. Also, because we do not know the member's or the fund's situation, we can give only information, not advice.

What is included in the Cleardocs package for Death Benefit Nominations and Death Benefit Agreements?

The Cleardocs package:

• for Death Benefit Agreements provides the single Agreement you need to create, replace or confirm the members' death benefit agreements.
• for Death Benefit Nominations provides the single Form you need to create, replace or confirm the members' death benefit nominations. The Cleardocs interface lets you set, on a member-by-member-basis, whether the member's nomination is binding or non-binding.

The Cleardocs interface lets you set, on a member-by-member-basis, whether a member has a death benefit agreement, a binding death benefit nomination or a non-binding death benefit nomination.

Why are Death Benefit Nominations and Agreements useful?

A member of a Self-Managed Superannuation Fund can use a Death Benefit Nomination or a Death Benefit Agreement to arrange who is to receive any amount payable under the fund when the member dies.

If there is no nomination or agreement, then normally the other trustees (or other directors) can distribute the relevant money at their complete discretion (in any way that that is allowed under the fund's deed and superannuation law) — potentially, even to themselves.

Are SMSF Death Benefit Nominations binding?

The law, and the Cleardocs SMSF Deed, allow a member to set whether their Death Benefit Nomination is to bind the other trustees (or the other directors) or merely to guide them. If an SMSF member's:

• Death Benefit Nomination is binding, then the trustees (or the other directors) must arrange for the relevant amounts to be paid exactly as the member directed. However, the law says that a binding Death Benefit Nomination lasts for only 3 years. So a member needs to consider whether to make a new binding nomination, or to confirm the existing binding nomination, within 3 years after the date of the existing nomination. (There is some controversy about this point. You can read an article here by our lawyers at Maddocks about why they believe the three year limit applies.)
• Death Benefit Nomination is non-binding, then the trustees (or the other directors) still have a discretion as to how the relevant amounts are to be paid. That is, they are not bound to follow the member's wishes.

Some people use a binding Death Benefit Nomination in situations where the member thinks that the other trustees (or other directors) might distribute the money in a manner that is not consistent with the member's wishes. In some families, this is a likely scenario. They need to consider:

• keeping the binding Death Benefit Nomination up to date because it lasts for only 3 years from the date it was signed or last confirmed; or
• arranging a Death Benefit Agreement which is binding, and permanent until the member revokes it or replaces it.

How often should members consider creating, replacing or renewing their SMSF death benefit arrangements?

Creating: Members should consider making a new arrangement whenever their situation, or their dependant's situation, changes in a way that affects how the member would like their superannuation benefit to be distributed after they die. The member should consider this whether the member has an Agreement or a Nomination, binding or non-binding.

Replacing or confirming: Members with binding nominations that still reflect the member's wishes should consider confirming their nominations at least every 3 years — this is because of the 3 years limit discussed under the previous heading.

How much does it cost to update or renew an SMSF member's death benefit arrangement?

The Cleardocs fee for producing the forms to create, replace, or confirm:

• the Death Benefit Nnominations for any, or all, of the members of an SMSF fund is $49.50 (inc. GST). The fee is the same for one or more members — provided the forms are ordered at the same time.
• Death Benefit Agreement for any, or all, of the members of an SMSF fund is $71.50 (inc. GST). The fee is the same for one or more members — provided the agreements are ordered at the same time.

If you order nominations and agreements at the same time for the same fund, then both fees apply — making a total of $121 (inc. GST).

Also, to create a new Death Benefit Agreement the SMSF will need to have a Cleardocs SMSF deed, which was created or updated on or after 4 May 2009. If the SMSF currently:

• has a Cleardocs deed, you can check which version it has by logging in at Cleardocs and clicking the light blue "Version X of Y" button beside the relevant SMSF in your list of documents — remember to look for the relevant SMSF in your list of SMSF set ups, SMSF deed updates and SMSF change of trustees; or
• does not have a Cleardocs deed, then you can update to a Cleardocs deed for $99 online

Questions or further information

If you have questions:

• about how to use Cleardocs, contact the Cleardocs helpline on 1300 307 343.
• about legal issues, contact the Cleardocs helpline on 1300 307 343. If you need advice, we will arrange for you to speak with a lawyer at Maddocks. The firm provides a free legal helpline in relation to the documents Cleardocs provides. If you require other legal advice in relation to your particular circumstances, then this will be charged for.