If you have your own self-managed super fund (SMSF), it’s crucial to ensure your assets will be protected and appropriately distributed after you die. You’ve been committed to making the best investment decisions for your fund, but it’s equally important to include effective estate planning too.
Read on to find out about:
- – What happens to your fund’s assets after you or an SMSF member dies.
- – The best way to protect and distribute your SMSF assets after your death.
- – The risk of not having an SMSF binding death nomination.
- – The benefit of setting up a reversionary beneficiary nomination.
What happens to your SMSF assets after you die?
According to Australian superannuation legislation, payment of your SMSF death benefits must be made to one or more dependants or beneficiaries as soon as possible after you die. There can be different tax implications depending on the type of benefit paid and the recipient.
If your benefits are going to a dependant or dependants (e.g. a spouse, a partner or adult children), then the death benefit can be paid as either a lump sum benefit or an income stream. Lump-sum benefits paid to dependants are tax-free.
If your SMSF death benefits are not going to any of your dependents, then they must be paid as a lump sum. When benefits are paid to a non-dependant, the taxation is different. It’s a good idea to seek advice regarding tax strategies and estate planning.
Protecting and distributing your SMSF assets
The best way to protect and ensure that your assets will be distributed the way you intend after your death is to complete a binding death nomination.
As the name suggests, this binds any other trustees in your SMSF to distribute your SMSF benefits to your nominated beneficiaries or legal personal representative. It helps to avoid arguments, especially with more and more people having blended families these days.
When you complete a binding death benefit nomination, you can also include cascading provisions that include an alternate beneficiary (or beneficiaries) if your preferred beneficiary (or beneficiaries) dies before you.
You should review your binding death benefit nomination every couple of years, or whenever your circumstances change. Ensure any binding death nomination you complete is non-lapsing to ensure your wealth protection after you die.
What if you don’t have a binding death nomination in your SMSF?
If you don’t, any surviving SMSF trustees have absolute discretion to decide how your SMSF death benefits should be distributed among your potential dependants, beneficiaries or estate. This could result in some or all of your assets going where you didn’t intend them to go, even if your other SMSF trustees have good intentions.
If there are no other trustees in your SMSF, your death benefits will go to your estate and be distributed according to your will.
What is a reversionary beneficiary nomination?
This allows the deceased’s spouse or partner to automatically receive the SMSF pension immediately after the SMSF member dies. It avoids any unnecessary delays for the intended recipient during a time of grief and reduces the impact on their financial situation.
The bottom line
Over your lifetime, you may find yourself in various financial situations with different needs and goals. As you go through different life stages, it’s essential to ensure that your estate plan adequately reflects your wishes regarding where you’d like your SMSF death benefit distributed.
You should seek professional advice from an estate planning specialist or financial adviser for help with your SMSF planning. This will ensure that your retirement savings are protected and distributed according to your personal circumstances after you die — and are legally binding.