Self-Managed Superannuation Fund (SMSF) and Death!

Man handing over cheque

If you are a trustee or member of a SMSF special consideration should be given to the payment of the member’s benefits or entitlement held in the fund on his/her death. 

A SMSF is established by a trust deed (the Deed) and the rules under it are managed by the Trustee. 

On the death of a member, the Trustee is obliged to deal with the deceased member’s benefits in accordance with law and the Deed. 

Usually the Deed provides for the member to have the opportunity to determine the destination of these benefits.  This is generally done by a Binding Death Benefit Nominated Form (BDBN). 

A member may nominate the beneficiary he or she wishes to receive the member’s benefits in the SMSF on death.  A member may only nominate his or her spouse, children, a person who was financially dependent on the member at the time of the member’s death and a person who had an interdependency relationship with the deceased member (broadly, a close personal relationship where they lived together and provided personal, emotional or financial support to each other) as well as the member’s legal personal representative (ie their estate). 

Consequently, the Trustee of the fund should be bound by the BDBN. 

Generally, if there is no BDBN entered into, the Trustee has a discretion to whom the benefits are paid in accordance with the Deed. 

It is essential therefore that planning is undertaken to determine who the Trustee(s) is (are) on the member’s death and who will be distributing the member’s benefits, especially if the deceased is also the Trustee of the fund. 

This succession issue is usually catered for in the SMSF Deed. 

It should also be noted that sometimes a Deed provides that a BDBN is ineffective after a period of time (say, 3 years) and a Trustee is no longer obliged to honour an outdated direction. 

Deeds all vary.  Moreover, Trustees may be individuals or a corporation. 

One should take careful legal/accounting advice on the construction of the Deed and the BDBN.  Care must also be taken to appoint the appropriate Trustee(s) and to ensure that a member’s benefits are dealt with in the way he or she intended. 

Finally, care must also be taken to ensure that the location of the Deed and any amendments to it are not lost.  These documents should be kept securely as the Deed will govern the decisions which have to be made upon the death of a member.

Should you require assistance with issues relating to the above please contact the team at Clelands Lawyers Adelaide.

Charles Beresford & Leon McEvoy

January 2019