What Happens to Your SMSF When a Member Dies?
When an SMSF member dies, the trustees must identify whether a valid Death Benefit Nomination exists, determine who is entitled to receive the death benefit, and decide whether it can be paid as a lump sum, a pension, or a combination, while continuing to meet the fund's ongoing compliance obligations.
What is a Death Benefit Nomination and is it binding?
A Death Benefit Nomination records how a member wants their SMSF balance distributed when they die. A binding nomination, if valid and current, directs the trustees on how the benefit must be paid, while a non-binding nomination is a guide the trustees consider but aren't strictly bound by.
Who can receive an SMSF death benefit?
Superannuation law restricts death benefits to dependants, such as a spouse, children, or someone in an interdependency relationship, or the deceased's legal personal representative, for distribution through the estate.
What happens to a surviving member's role as trustee?
The fund's trustee structure needs to be reviewed following a member's death. In a corporate trustee structure, the deceased's role as director generally needs to be replaced, either by the legal personal representative or another appointed person, within a required timeframe.
What documents are required to pay a death benefit?
Trustees generally need the death certificate, the member's Death Benefit Nomination, evidence of the recipient's dependant status where relevant, and Trustee resolutions documenting how and to whom the benefit is being paid.
Frequently asked questions
What's the difference between a binding and non-binding nomination?
A valid binding nomination compels the trustees to pay the benefit as directed, while a non-binding nomination is guidance the trustees take into account but retain discretion over.
Can a death benefit be paid as a pension to a spouse?
Subject to the Trust Deed and superannuation law, a death benefit can generally be paid as a pension to an eligible dependant such as a spouse.
What happens if there's no valid Death Benefit Nomination?
Without a valid nomination, the trustees generally use their discretion, guided by the Trust Deed, to determine how the benefit is distributed among eligible dependants or the estate.
Need help managing an SMSF death benefit? Contact Lifetime SMSF on 1300 031 943 or visit lifetimesmsf.com.au to talk to a specialist.
This information is general and factual in nature. It is not financial product advice, legal advice or tax advice. Lifetime SMSF Pty Ltd is not licensed to provide financial product advice under the Corporations Act 2001. If you require personal advice, consult an appropriately licensed or authorised financial adviser.