Estate Planning

When a Member dies, the Member’s benefit will be passed on to beneficiaries or the Member’s legal personal representative. This can be done in the form of a Binding Death Benefit Nomination (BDBN), also referred to as an “SMSF Will“.

When the Trust Deed is silent or ambiguous as to whom the beneficiaries are, the Member’s benefit will pass on to the estate of the Member and be allocated from there according to their Last Will or Testament. The disadvantage of this approach is that outside parties may lay claim to the estate, e.g. previous spouses, family members or even creditors. For this reason it is prudent to indicate in the SMSF Trust Deed who the beneficiaries are.

Recent Legal Cases

As per the Superannuation Industry (Supervision) Regulations, benefit can only be made out to an individual. Generally, the Trustees of the Fund control the benefit in the SMSF.

There are some specific items that Trustees should look out for when establishing a BDBN.  Trustees must ensure that their nominations are clearly noted in the Fund’s Trust Deed or a subsequent BDBN. The main areas to consider and the key risks of SMSF estate planning are noted in the five Court cases :

Katz vs Grossman – Trustees of the Fund controls the benefit in the SMSF
Marsella vs Wareham – A discretionary power of a Trustee of the Fund is set aside
Donovan vs Donovan – BDBN must be clearly noted as binding on the Trustee
Munro vs Munro – BDBN must be clearly worded to ensure validity upon a Member's death
Wooster vs Morris – BDBN is only a partial solution at best, the Trust Deed of the Fund should contain further controls to ensure a sensible and efficient outcome
Ioppolo vs Conti – Trustees need to ensure that their BDBN is valid and up to date

Four SMSF Estate planning options

There are effectively four ways that you as a Trustee can look after your dependents or others from your SMSF on your death:

  • You can pay a lump sum from your benefits in the Fund, by way of cash or assets, to a dependent or the Trustee of your legal estate
  • You may pay a pension from your benefits in the Fund to a dependent. There are restrictions on paying pensions to child dependents over the age of 18 unless the child is a student under the age of 25 or a child who is disabled
  • A reversion of an existing pension which results in the continuation of the pension in the name of the reversionary beneficiary, provided the person is a dependent – again subject to the child limitation above
  • Any insurance proceeds from a life insurance policy held in your name as a Trustee may be used to increase the deceased Member’s benefits

Updating or establishing a BDBN

Here is the BDBN or SMSF Will. This will be valid until the Member decides to change it.

Binding Death Benefit Nomination

If you have set up a Fund with us, our Trust Deed includes the BDBN for each Member. This nomination will be in place until the Member decides to change it. For more information on Trust Deed, please click on the button below:

  • Sunny

    1. What are the steps needs to be followed when a smsf member die? Could you please explain in detail step by step? 2. What if they have both reversionery and bdbn? 3. On death do they need to go to smsf accountant or lawyer for benefits withdrawal?

    • Hein Preller

      Sunny,

      The first thing to note is what the last BDBN states. It’s the responsibility of the Trustees to comply with wishes of the Member.

      One Trustee can have a reversionary pension to a spouse. If both partners die, and there’s no valid BDBN the benefit will go to the estate.

      • Sunny

        What if someone has both reversionery and bdbn? Than the benefits will be paid according to reversionery or bdbn?

        • Hein Preller

          It will pay to the last wishes of the Member.

Contact Details


logo-grey

Peace Of Mind

We are Melbourne based with clients throughout Australia. Our SMSF administration service is mostly paperless. This enable us to charge a fair fee, resulting in a good value-proposition for you.

No Advice

Superannuation Warehouse is an accounting firm and do not provide financial advice. All information provided has been prepared without taking into account any of the Trustees’ objectives, financial situation or needs. Because of that, Trustees are advised to consider their own circumstances before engaging our services.