Who really benefits from your SMSF?
A common misconception about death and a person’s self managed superannuation fund (SMSF) is that their superannuation entitlements are automatically dealt with as part of your will and estate. This is not the case! It is in fact the governing rules of the SMSF deed that determine what happens to a person’s superannuation balance upon death.
Without the appropriate beneficiary nominations in place, the remaining trustees of a SMSF may have the discretion to distribute a deceased members’ superannuation to any dependent upon their death. Because of this it is very important that beneficiary nominations are considered during estate planning.
The 3 main types of nominations available are as follows and which nomination is right for the SMSF member will depend on how much control & assurance they want over the distribution of their entitlements on their death.
1. Non-binding: This form provides a direction to the trustee as to how the member would like their superannuation benefits paid. It is however at the trustee's discretion and the remaining trustee is not bound to follow this direction.
2. Binding: This is a legally enforceable direction to the trustee documenting who to pay the benefit to. A binding nomination expires after 3 years and must be completed correctly and signed by the appropriate witnesses in order to be valid.
3. Binding non-lapsing: The only difference between this and a binding nomination is that as the name would suggest it is non-lapsing and does not expire after the 3 year period. Some older SMSF deeds do not provide for these types of nominations so it is important to review the most recent SMSF deed before putting this type of nomination in place.
It is important to note that member entitlements cannot be distributed to just anyone. The nominated beneficiary must be either:
- A legal personal representative. For example, the executor of the will or the administrator of the estate.
- A dependent. This includes the spouse of the person, any child of the person and any person with whom the person has an interdependency relationship.
For more information about interdependency relationships click here to read more on the ATO website.
If you wish to discuss this further or you have other SMSF related questions please contact one of our team of experts.