YOUR SCENARIO

You and your spouse are sitting on your couch, watching a TV ad, and wondering what would be the best way to deal with your superannuation fund’s assets in the event of death.

QUESTION:

What happens to your superannuation fund’s assets in the event of death?

ANSWER:

In the event of your passing, the first step is to refer to your Self-Managed Superannuation Fund’s (SMSF) trust deed to ascertain how it handles death benefits.

PRO TIPS

It’s essential to understand that your superannuation fund’s assets do not fall under the category of estate assets. Consequently, the executor of your will does not have authority over the distribution of your superannuation fund’s assets.

SMSF trust deeds can vary in their provisions, so it’s crucial to note that not all of them are alike. In a broad sense, it is possible to establish a Binding Death Benefit Nomination (BDBN), which outlines how the trustee of your SMSF should distribute the assets, including the option to direct them to your will if applicable. Some BDBNs may have a lapsing feature, necessitating re-nomination after a specified period, typically around three (3) years.

Additionally, while you are alive, if you have commenced a pension and have valid reversionary pension documentation in place, this arrangement can ensure the continuation of the pension payments to your surviving spouse. Generally speaking, reversionary pension trumps BDBNs.

TRAP

If you nominate your children as beneficiaries and they are older than 18 years of age, there may be “hidden taxes” of up to 32% applied to your superannuation assets in the hand of your children.

If your SMSF holds illiquid assets, such as real property, and lacks sufficient liquidity (cash), your trustee may be compelled to sell or transfer these properties, as death benefits to be paid out.

From a planning perspective, it is also vital to consider how the distribution of the death benefit to the surviving spouse may impact his/ her Transfer Balance Cap, which is to a maximum of $1.9M.

DISCLAIMER

GW Capital Group Pvt Ltd General Advice Warning: This advice may not be suitable to you because it contains general advice that has not been tailored to your personal circumstances. please seek personal advice prior to acting on this information.