SMSF Estate Planning and Wills: When a Member Passes Away

Estate planning within a Self-Managed Super Fund (SMSF), often referred to as an SMSF Will, is a crucial element of managing retirement savings beyond life.

Trustees and members should carefully consider estate planning to ensure superannuation death benefits are paid according to members’ wishes and within legal frameworks.

Binding vs. Non-Binding Death Benefit Nominations

A Binding Death Benefit Nomination (BDBN) legally requires trustees to pay the death benefit to the nominated beneficiaries, usually remaining valid for three years unless the SMSF trust deed allows a non-lapsing nomination. Without a binding nomination, trustees have discretion consistent with the trust deed and may pay benefits to dependants or the member’s legal personal representative (LPR).

It is important to note death benefits must be paid to “natural persons" and the fund’s trust deed should be clear on beneficiary designations to minimise risk of claims from outside parties such as former spouses or creditors.

However, death benefits can be paid to the deceased member's legal personal representative (the executor/trustee of the estate) and is not a natural person in the legal sense.

SMSF Estate Planning and Wills

No Valid Binding Nomination

If both the trust deed is silent on beneficiaries and there is no BDBN, the death benefit usually passes to the deceased's estate and is distributed according to the member’s Will or, absent a Will, under intestacy laws.

However, trustees exercise discretion under the trust deed and SISR and may pay dependants or the LPR. Payment to the estate (LPR) does occur in many cases and may lead to distribution by will or intestacy, but the trustee's discretion and the fund rules determine the outcome.

Hence, this scenario increases the risk of disputes and unwanted claims on the benefit.

Tax Implications of Death Benefits

Where death benefits are paid to financial dependants, no tax is withheld. Financial dependants include a spouse, children under 18, or persons financially dependent on the deceased. Benefits paid to non-financial dependants, such as adult children who are not financially dependent, attract taxes withheld by the SMSF before payment. Please discuss with a qualified professional for bespoke advice.

Trustee Succession on Death of a Member

Upon a trustee or member’s death, the SMSF must act responsibly to pay benefits “as soon as practicable,” typically within six months, though payment timing depends on practical and legal matters.

Trust deeds and corporate trustee structures influence succession options, which may involve appointing new trustees, converting to a corporate trustee, or having legal personal representatives administer the fund. Prompt restructuring facilitates smooth management, limits disputes, and ensures timely death benefit payments.

Integrating Estate Planning with SMSF Trust Deeds and Wills

Many SMSFs implement an “SMSF Will” through detailed provisions in the trust deed, specifying beneficiary entitlements, contingent beneficiaries, and payment methods such as pensions or lump sums. This layered approach increases control and tax-effective distribution and helps manage blended family complexities and intergenerational wealth transfer.

Mortgage brokers supporting SMSF clients should understand these estate and succession mechanisms, particularly when SMSF-held assets like property are involved, aligning loan and asset management with estate strategies.

Effective estate planning and clear documentation such as binding death benefit nominations, trust deed provisions and trustee minutes, are essential to safeguard member wishes, reduce legal risks, and meet compliance. Trustees, members, and advisers should seek expert advice regularly to maintain current, valid arrangements supporting smooth SMSF succession and benefit distribution.

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(GENERAL INFORMATION ONLY)

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DISCLAIMER: This article is provided for general information and educational purposes only. It does not constitute financial, legal, tax, investment, or other professional advice and has been prepared without taking into account your personal objectives, financial situation, or needs. This article may include perspectives from industry contributors. Contributor participation does not imply endorsement, recommendation, or preferred referral status. While reasonable care has been taken in preparing this content, no representation or warranty is made as to its accuracy, completeness, or currency. SMSF Intelligence does not accept liability for any loss or damage arising from reliance on this information or any linked materials. SMSF Intelligence does not provide financial, legal, or tax advice. Before making any decisions, you should consider the appropriateness of the information in light of your circumstances and seek advice from a suitably qualified and licensed professional.