When you control a self-managed super fund (SMSF), you have a responsibility to meet the legislative requirements that are set out in the SIS Act. This includes the actions you need to take when things change.
The death of a member is one such change.
With most SMSFs set up by couples or families, we understand that the death of a member is much more than just that. It may also be the death of a loved family member. This can signal the start of an exceptionally challenging period for those close to them who will be coping with grief and emotional upheaval.
In times like these, advance preparation can mean a smoother and calmer experience while working through the legislative and administrative requirements of the SMSF during this time.
It’s important to note the SIS Act takes these factors into account and allows you time to carry out any required changes to ensure your SMSF remains compliant.
Initially, the deceased member’s legal personal representative (LPR) steps in as an interim trustee of the SMSF. This person is usually the executor of the member’s estate and their involvement allows the fund to continue operating. This is especially important when the SMSF consists of only two members.
In most circumstances, the trustee of the SMSF will need to pay the death benefit to a dependant or beneficiary. It’s important to understand the definition of dependant as this will determine the types of payments you can make to distribute the death benefit.
A dependant (for super purposes) generally meets the following criteria:
If the beneficiary is classed as a dependant under super law, the death benefit may be paid by an income stream (in certain circumstances) or a lump sum. If the beneficiary is not a dependant of the member the SMSF will need to pay the death benefit as a lump sum.
During this time, the SMSF may not meet the traditional definition of an SMSF however you have some time, usually six months, to make any changes required to ensure compliance again. After this time, if the SMSF does not meet the definition, the fund will need to be wound up.
All members of an SMSF are required to be involved as a trustee of the fund. This may be as a personal trustee or as a director of a corporate trustee.
If the controlling and decision-making member passes away, the remaining SMSF assets may be rolled into a standard super fund.
No matter what type of trustee is designated for the SMSF, there will be administrative processes that will need to be actioned upon a member’s death.
Making changes to an SMSF with personal trustees can be costly and time-consuming. This is why it’s always recommended to seek advice about your options when appointing a trustee.
All SMSFs with personal trustees are required to have a minimum of two trustees. If this requirement can’t be met, the SMSF will need to be restructured with a corporate trustee or wound up.
You’ll need to:
This structure represents the least disturbance to the fund with the corporate trustee remaining in place and all asset ownership staying the same. The SMSF would continue to be managed by the corporate trustee and a new director appointed.
You’ll need to:
Superannuation doesn’t form part of a deceased person’s estate, so it can’t be distributed as part of a will. The death benefit is usually paid in accordance with the person’s wishes outlined in a death benefit nomination.
If a death benefit nomination hasn’t been completed, the trustee/s of the SMSF will determine to whom the death benefit will be paid. This is done in line with requirements stipulated in super legislation and the trust deed. The trust deed must be followed even if it’s in contradiction to the member’s will.
Paying the death benefit can be a complex process as there are a number of considerations you’ll need to be aware of:
By seeking expert assistance, you can make sure that you meet your requirements as a trustee of the fund during this time.
Fulfilling the obligations required after a member’s death can certainly be fraught with confusion at what is a difficult time.
It’s important to remember that many actions can only be undertaken if these have been allowed for within the SMSF trust deed. Complications may arise where the SMSF trust deed doesn’t sufficiently include directions or permissions for situations like this.
Clear direction within an SMSF trust deed can help to make challenging situations easier. It can also help to ensure that costly legal intervention isn’t required down the track.
This is why we advocate a comprehensive approach when setting up an SMSF, to allow for any situation that may arise. It’s also important to review your SMSF trust deed at regular intervals to ensure it addresses particular events that may happen.
This blog has been prepared by RJS Wealth Management Pty. Ltd. ABN 24 156 207 126. RJS Wealth Management Pty. Ltd. is a Corporate Authorised Representative (No. 438158) of Modoras Pty. Ltd. ABN 86 068 034 908 an Australian Financial Services and Credit Licensee (Number 233209). The information and opinions contained in this blog is general information only and is not intended to represent specific personal advice (Accounting, taxation, financial, insurance or credit). No individual’s personal circumstances have been taken into consideration for the preparation of this material. Any individual making a decision to buy, sell or hold any particular financial product should make their own assessment taking into account their own particular circumstances. The information and opinions herein do not constitute any recommendation to purchase, sell or hold any particular financial product. Modoras Pty Ltd recommends that no financial product or financial service be acquired or disposed of or financial strategy adopted without you first obtaining professional personal financial advice suitable and appropriate to your own personal needs, objectives, goals and circumstances. Information, forecasts and opinions contained in this blog can change without notice. Modoras Pty. Ltd. does not guarantee the accuracy of the information at any particular time. Although care has been exercised in compiling the information contained within, Modoras Pty. Ltd. does not warrant that the articles within are free from errors, inaccuracies or omissions. To the extent permissible by law, neither Modoras Pty. Ltd. nor its employees, representatives or agents (including associated and affiliated companies) accept liability for loss or damages incurred as a result of a person acting in reliance of this publication.