Superannuation is a key part of retirement planning in Australia. But many people forget that what happens to your super when you pass away is just as important as building your balance in life. For self-managed super funds (SMSFs), beneficiary nominations (also called death benefit nominations) are crucial in ensuring your super is distributed according to your wishes.
This article covers:
- What a beneficiary nomination is (binding vs non-binding)
- Who you can lawfully nominate
- How SMSF trust deeds and super law affect nominations
- Tax consequences of different beneficiaries
- Common pitfalls and best practices
- Useful further reading and links
What Is a Beneficiary (Death Benefit) Nomination?
A beneficiary nomination in the context of super is a formal direction you give to your super fund (in this case, your SMSF) about who should receive your super when you die. Technically, the amount becomes a super death benefit after your passing. (Australian Taxation Office)
Because SMSFs are trust structures, the trustees (or directors, in the case of a corporate trustee) must follow both:
- The SMSF’s trust deed and internal rules, and
- The external superannuation and taxation law (SISA, SISR, etc.).
Even if your Will says something about your super, the Will does not automatically override the nomination or the super fund’s rules. (Australian Taxation Office)
If you have a valid binding death benefit nomination (BDBN), the trustee is legally required to adhere to it (provided it satisfies the trust deed and law). If you only have a non-binding nomination, the trustee may have discretion to depart from your wishes. (Tax Super and You)
Who Can Be Nominated?
Under the superannuation laws, death benefits can only be paid to certain classes of persons. You cannot nominate just anyone. The legal options are:
- Dependants (for super purposes)
- Your legal personal representative (i.e. executor or administrator of your estate)
What does “dependant” include? According to law and ATO guidance, at the time of death a dependant may be:
- Your spouse (including same-sex or de facto partner)
- Your children (of any age, including adopted, step or ex-nuptial)
- Someone in an interdependency relationship with you
- Someone financially dependent on you
- For tax purposes, the definition of “tax dependant” is relevant when considering tax on benefits (Australian Taxation Office)
One key nuance: non-dependants cannot receive a death benefit income stream (a pension), but they may receive a lump sum. (Australian Taxation Office)
If you don’t make a valid nomination, or the nomination is invalid, the trustee must use discretion and may pay the benefit to one or more dependants or your legal personal representative. (Australian Taxation Office)
Binding vs Non-Binding Nominations
Binding Death Benefit Nomination (BDBN)
A binding nomination (when valid) directs the trustee to pay your death benefit exactly as you specify — to particular person(s), in given proportions. (Tax Super and You)
Pros:
- Certainty: fewer risks of trustee discretion or disputes
- You control proportions and who gets what
- Can be structured to align with your estate plan
Cons / pitfalls:
- It must comply with your SMSF trust deed (if the deed doesn’t allow binding nominations, then you can’t validly make one)
- It must satisfy formal requirements (writing, witnesses, valid beneficiaries)
- If a binding nomination lapsing (e.g. limited to 3 years), and isn’t renewed, then upon your death it might no longer be valid
- Changes in your personal circumstances (marriage, divorce, birth, death of nominee) may make the nomination inconsistent
- Some older trust deeds may inadvertently “opt in” to rules that force nominations to expire after 3 years (which may not be appropriate for many SMSFs) (CPA Australia)
Since the High Court decision in Hill v Zuda Pty Ltd (2022), it’s clearer that in some cases a non-lapsing BDBN may remain valid indefinitely — but only if the SMSF deed properly supports it. (CPA Australia)
In fact, the ATO in its Determination SMSFD 2008/3 confirms that the usual regulation requiring 3-year expiry (Regulation 6.17A) does not apply to SMSFs, meaning a properly drafted deed could allow binding nominations that don’t lapse. (Australian Taxation Office)
Non-Binding Nomination
A non-binding nomination expresses your wish about who should receive your super, but does not legally bind the trustee. The trustee retains discretion, must consider your nomination, but can depart from it where they believe it’s reasonable. (Tax Super and You)
Non-binding nominations are safer from being “invalidated” by technical issues, and often do not expire. But they offer less certainty to ensure your wishes are followed.
SMSF Trust Deed & Legal Requirements
The real authority over nominations in an SMSF is your trust deed. Even if super law allows certain nominations, the deed might restrict or specify how they must be done. For example:
- The deed may not permit binding nominations (so only non-binding allowed)
- The deed may require you use a specific form or template
- The deed may impose expiry periods (e.g. 3-year lapsing nominations)
- The deed will specify how benefits are to be paid on death (lump sum, pension, combination)
Thus, before making any nomination, you must check your SMSF’s deed (or have a professional review it) to ensure compliance.
Additionally, certain rules in the super law cannot be overridden by deed — for example, payments must be made to dependants or legal personal representative, and income stream payments have strict rules about who can receive them. (Australian Taxation Office)
Taxation of Death Benefits
Tax is a key consideration, and it often changes based on who receives the benefit (dependant vs non-dependant) and whether the benefit is paid as a lump sum or an income stream.
Lump Sum Payments
- If the death benefit is paid as a lump sum to a tax dependant, it is tax-free (i.e. non-assessable, non-exempt income for the recipient) (Australian Taxation Office)
- If paid to a non-dependant, the taxable component may incur up to 15% tax + Medicare levy on the taxed component, and up to 30% tax on the untaxed component (if any)
Income Streams (Pensions / Death Benefit Pension)
- If you receive a death benefit in pension (income stream) form, only a dependant may receive it
- The income stream may incur tax depending on age and whether the recipient is a dependant
- Income streams count toward your transfer balance cap (i.e. the lifetime cap on how much you can transfer into tax-free retirement phase), so starting a death benefit pension may create a credit in your transfer balance account. (Australian Taxation Office)
Given these tax rules, some SMSF members may strategically plan on withdrawing (cashing) part of their super before death (if allowed) to reduce exposure to “death tax” on non-dependants — though this must be weighed against loss of tax benefits in the super environment.
Common Risks, Mistakes & Best Practices
| Issue | Risk / Consequence | Best Practice |
| Nomination lapses or becomes invalid | Trustee may ignore it and use discretion | Use a non-lapsing BDBN (if deed allows), or review/renew every 3 years |
| Deed doesn’t allow binding nominations | You may think your binding nomination is valid, but legally it isn’t | Always confirm or amend the SMSF trust deed |
| Nominating ineligible persons | Trustee must reject or partially pay benefit; your wish is frustrated | Stick to dependants or legal personal representative |
| Failing to update after life changes | Your old nomination may no longer reflect your wishes | Review after marriage, divorce, birth, death, change in relationships |
| Trustee discretion ignored | Even with non-binding nominations, trustee must consider your wishes before deviating | Document reasons for deviation and trustee decision-making |
| Conflict with other estate planning documents | Your will might conflict with your super nomination | Coordinate your super nomination with your overall estate plan |
| Overshooting transfer balance cap via death benefit pension | May cause excess transfer and tax consequences | Be very careful about allocating death benefit into pension form |
Steps to Make or Update a Beneficiary Nomination in an SMSF
- Review your SMSF trust deed to see what kinds of nominations are allowed (binding / non-binding / expiry rules / required form).
- Decide whether you want a binding or non-binding nomination (or both).
- Use a valid nomination form, meeting all formal requirements (writing, signatures, witnesses, proper beneficiary descriptions).
- Ensure the nominated persons are dependants or legal personal representative at the time of death.
- If doing a binding nomination with expiry, set reminders to renew before expiry.
- Keep records of when nominations were made, changed or revoked.
- Review regularly (e.g. every 2–3 years or after major life event).
- Communicate your intentions to trustees and ensure they have a copy.
- Always seek professional advice (legal, tax, SMSF specialist).
Further Reading & Authoritative References
- ATO: Death of an SMSF member — what trustees need to do when a member dies (Australian Taxation Office)
- ATO: Superannuation death benefits (how death benefits are treated) (Australian Taxation Office)
- SmallBusiness / Tax & You (Australia): Death benefit nominations in SMSFs (Tax Super and You)
Visiting these pages will help you see sample forms, legal commentary, and further detail.
Conclusion
Formulating a valid and updated beneficiary nomination is one of the most important pieces of SMSF estate planning. Done well, it ensures your super death benefits pass according to your wishes, minimises tax for your beneficiaries, and reduces the risk of disputes or trustee discretion. By combining:
- a well-drafted trust deed
- a nomination (binding or non-binding) that matches your wishes
- periodic review and updates
- coordination with wills and estate plans
you can give yourself and your loved ones greater peace of mind.
Disclaimer
The information in this article is general in nature and provided for educational purposes only. It does not take into account your personal objectives, financial situation or needs, and should not be relied on as legal, financial, or taxation advice. Superannuation, tax and estate planning laws are complex and subject to change. Before making any decisions about SMSF beneficiary nominations or related matters, you should seek professional advice from a qualified SMSF accountant, financial adviser, or lawyer.
