Beneficiary nominations are a crucial part of Australia's superannuation and retirement system. Accurately specifying the beneficiary of superannuation benefits is important, especially, who is to receive the benefits after an SMSF member dies. The governing rules — the deed — of an SMSF may permit an SMSF member to provide the trustee with a binding, or non-binding, death benefit arrangement.
The Cleardocs SMSF deed allows for:
Having the right arrangement in place, and up to date, is crucial to giving effect to the SMSF member's wishes.
It turns out that the US equivalent of our superannuation plans, their 401(k) plans, encounter similar issues about keeping the death benefit arrangements up to date. Kim Saunders, a tax analyst for Thomson Reuters in the US, said a recent US Supreme Court case involved a US$400,000 employer-sponsored retirement account which seems to have ended up in the "wrong" person's hands.
In the case:
William's estate sued the plan, saying that because of Liv's waiver in the divorce decree, the funds should have been paid to the estate instead of Liv.
The US Supreme Court disagreed with William's arguments. It ruled that the plan documents (which called for the beneficiary to be designated and changed in a specific way) trumped the divorce decree.
One of the important messages from the case was the need to keep beneficiary nominations up to date. Whether it is because of divorce or another life-changing event, beneficiary nominations made years ago can easily become outdated. This basic message applies in Australia too.
Also, in Australia, a binding death benefit nomination ceases to have effect after 3 years from when it was first signed or last confirmed (unless the member revokes it sooner or the fund's rules fix a shorter period).
Whatever death benefit arrangements an SMSF member has in place, it is important to keep those arrangements up to date. One good reason to do so is, if possible, to make sure the superannuation death benefits are received tax-free — this advantage can be put at risk by a potential beneficiary's "death benefit dependant" status changing over time (for example, a child turning 18). Therefore, it may be necessary to review a binding death benefit nomination more regularly than every 3 years.
Superannuation, like many things, is not a "set and forget" matter.
You can read earlier ClearLaw articles on a wide range of SMSF topics here.
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Source: This article was first published in Thomson Reuters' Weekly Tax Bulletin. To subscribe to Weekly Tax Bulletin, or for more information, please
 Reg 6.17A of the SIS Regulations.
Leigh is a partner in the Maddocks Tax & Revenue team.
Leigh regularly provides advice on:
His advice covers both direct and indirect tax considerations.
Leigh advises Australian and multinational companies, high net worth individuals, accountants and financial advisers on all areas of taxation law.
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