Distributions from a deceased’s superannuation fund are referred to as “death benefits”. As with retail funds, death benefits, when distributed from a self-managed superannuation fund (SMSF) are categorised separately to other estate assets.
The role of the trustee of a SMSF is separate from that of an estate’s executor, usually referred to as the Legal Personal Representative (“LPR”). There is no prohibition on having the same person act in both capacities, although the potential for conflicts of interest is avoided by having separate people act. The trust deed governing the SMSF will usually include a binding death benefit nomination directing the trustee on matters of distribution. Only certain classes of persons can be nominated as beneficiaries. Depending on the terms of the trust, such nomination usually remains effective unless and until the trust deed is altered.
A binding death benefit nomination will direct the trustee to distribute the fund assets to specifically nominated beneficiaries, such a direction effectively avoids the fund becoming part of the estate and thereafter subject to distribution under the provisions of the will. In the alternative, the trustee can be directed to pay the death benefits directly into the deceased’s estate for distribution by the LPR under the terms of the will.
While a degree of certainty is introduced through the execution of a binding death benefit nomination, restrictions thereby placed on the trustee may obviate any opportunity to adopt flexible distribution strategies in response to developments in taxation laws and the circumstances of beneficiaries. Distributing SMSF assets directly through the trust deed, can of advantage by isolating the SMSF assets where a will is likely to be challenged or when an estate may have solvency issues.
Members of a SMSF must usually be a trustee of the fund or a director of the trustee company and any loss of legal capacity by a trustee will have implications for the SMSF. A person who loses capacity cannot act as a trustee or a director of a trustee company which could result in the dissolution of the SMSF. Creating an Enduring Power of Attorney, invoked should a member lose legal capacity, should be considered when establishing the SMSF so that major fund assets do not have to be dispersed.
Professional advice in this area can ensure that your intentions remain clear and untethered by other regulations. Contact & Legal if you require assistance.