Most people thinking about what will happen to their superannuation after their death focus on one question. Who will receive it?
If you have a self-managed super fund, or SMSF, there is another important question to consider.
Who will control the fund and manage your super death benefit after your death?
An SMSF has its own rules and trustee structure. Your super also does not automatically form part of your estate to be distributed under your Will.
This means SMSF succession planning should be considered as part of your broader estate plan. Having appropriate arrangements in place can help ensure your SMSF, your super death benefit and your estate planning documents work together as intended.
Does Your Will Control Your SMSF?
Not by itself. Your Will sets out how assets forming part of your estate are to be dealt with after your death. Superannuation is different because it is generally held within a superannuation fund rather than owned by you personally.
For an SMSF, what happens following a member’s death can depend on several things, including:
- the SMSF trust deed
- whether the fund has individual trustees or a corporate trustee
- the arrangements governing the trustee company, where applicable
- any valid death benefit nomination
- superannuation law
- your Will, particularly if your super death benefit is paid to your legal personal representative and becomes part of your estate
This is why it is important to consider your SMSF and your estate plan together rather than treating them as completely separate arrangements.
Who Controls Your SMSF After Your Death?
The answer will depend on how your SMSF is structured and the governing rules that apply to it. Generally, an SMSF will have either individual trustees or a company acting as its corporate trustee.
SMSFs With Individual Trustees
Where an SMSF has individual trustees, each member is generally also a trustee.
Superannuation law allows a deceased member’s legal personal representative to act as a trustee in place of the deceased member for a period following their death, provided the relevant requirements are satisfied. Importantly, this should not be understood to mean that the deceased member’s executor automatically becomes a trustee in every case.
The SMSF trust deed, the structure of the fund and the steps required to appoint or remove trustees all need to be considered. This is one reason why it is important to consider trustee succession before it becomes an immediate issue.
SMSFs With a Corporate Trustee
An SMSF can instead have a company acting as its trustee, with the fund members generally acting as directors of that company. A corporate trustee can provide continuity because the company itself continues to exist if one of its directors dies. However, there still needs to be a plan for who will control the trustee company following a member’s death.
What happens will depend on the particular circumstances, including the company’s directorship and ownership arrangements. For example, where someone is the sole director and sole shareholder of a proprietary company, Australian company law allows the executor or administrator of their estate to appoint a new director following their death.
The appropriate succession arrangements will therefore depend on the structure of the SMSF and its trustee company. There is no single approach that will be suitable for every SMSF.
What Happens to Your SMSF Death Benefit?
Who controls the SMSF and who receives the super death benefit are closely connected questions, but they are not the same thing.
A death benefit nomination can be an important part of determining what happens to your super after your death. If permitted by the SMSF’s trust deed, a member may be able to make a binding or non-binding death benefit nomination.
A valid binding death benefit nomination can direct the trustee about how the member’s death benefit is to be paid, subject to the SMSF’s governing rules and superannuation law.
A non-binding nomination records the member’s preferred beneficiaries but leaves the final decision with the trustee. If there is no binding nomination in place, the remaining trustees will generally decide how the death benefit is distributed in accordance with the fund’s trust deed and superannuation law. This means it is important to consider not only who you would like to receive your super death benefit, but also who may be controlling the SMSF when those decisions need to be made.
You can read more about this in our article Death and Superannuation: What Happens to Your Super When You Die?.
Why Your SMSF and Estate Plan Should Work Together
SMSF succession planning should not be considered in isolation. Your SMSF trust deed, death benefit nomination and Will can all affect what happens after your death. If your SMSF has a corporate trustee, the arrangements for that company may also need to be considered. Reviewing these arrangements together can help identify gaps or inconsistencies before they become a problem.
As part of your review, it can be helpful to consider:
- Your SMSF trust deed
Does it appropriately deal with the death or incapacity of a member, and is it suitable for your current circumstances? - Your death benefit nomination
Is it current, valid under the governing rules of your fund and consistent with your wishes? - Your trustee arrangements
If a member dies or loses capacity, who will be able to take their place and what steps will need to occur? - Your corporate trustee arrangements
If your SMSF has a corporate trustee, what arrangements are in place for the control of the company if a director or shareholder dies? - Your Will
Does your Will work with your SMSF arrangements, particularly if your super death benefit may be paid to your estate?
Looking at each document separately can miss the bigger picture. The aim is to make sure the different parts of your estate and succession plan work together.
When Should You Review Your SMSF Succession Plan?
SMSF succession planning is not something that needs to be considered only later in life. It may be worth reviewing your arrangements if:
- your SMSF arrangements have not been reviewed for several years
- you have made or updated your Will
- you have married, separated or divorced
- a member has joined or left your SMSF
- you have changed your SMSF trustee structure
- your intended beneficiaries have changed
- a trustee or member has lost capacity
- there has been a significant change in your family or financial circumstances
It can also be helpful to review your SMSF arrangements whenever you undertake a broader review of your estate plan.
Getting the Right Advice
SMSF succession planning can involve several areas, including estate planning, superannuation, company structures and taxation. For this reason, your solicitor may need to work alongside your accountant, financial adviser or other SMSF professionals when reviewing your arrangements.
Taking a coordinated approach can help ensure your SMSF arrangements, estate planning documents and broader financial arrangements are working towards the same objectives.
Speak With Our Wills and Estate Planning Team
If you have an SMSF, it is worth considering whether your fund’s succession arrangements still work with your broader estate plan.
Our Wills and Estate Planning team can review your estate planning arrangements and work with your accountant, financial adviser or other professional advisers where appropriate to help ensure the different parts of your plan work together. Our team includes NSW Accredited Specialists in Wills and Estates Law, Adeline Schiralli and Janette Kveytel. Call us on (02) 9523 5535 or contact our team online to arrange an appointment.
This article contains general information only and is not legal, financial or taxation advice. The appropriate arrangements will depend on your individual circumstances and the governing rules of your SMSF. You should obtain advice specific to your circumstances.
