In this guide
Most SMSF trustees suggest 'control' is the main reason they established their self-managed super fund; control around investment choice and control over how their retirement savings are managed and eventually paid from the fund.
However, when it comes to the payment of death benefits from an SMSF and who will receive them, that level of control can quickly disappear where the legal or fund specific requirements have not been met.
For that reason, it’s extremely important for SMSF trustees to have a good grasp of the rules around death benefit payments and how to put in place a death benefit nomination that remains valid.
When it comes to validity for death benefit nominations, the best place to start is with the rules around 'dependents'.
Dependents
The term 'dependent' refers to those people who are eligible to receive your super death benefits (that is, a superannuation law (SIS) dependent), and those who may be eligible to receive some level of tax concession on these payments (a tax law dependent).
To make things slightly more confusing, there are different definitions for a dependent for superannuation law and taxation law purposes.
Superannuation Law (SIS) dependent
Superannuation law defines a dependent as:
- A current spouse or de facto
- Your children of any age
- A financial dependent
- An interdependent – where you and the other person live together, have a close personal relationship and at least one of you provides the other with financial support, domestic support and personal care.
Only superannuation law dependents are eligible to receive your death benefits directly from your SMSF.
If a nomination is made in favour of a non-dependent, that nomination will be invalid and will result in the remaining SMSF trustees having the final say on who they will pay.
If you want your super benefits to be paid to a person who is not a superannuation law dependent, for instance a sibling or a friend, then you may need to have these benefits paid into your estate first and then dealt with under your Will.
Taxation law dependent
Tax law defines a dependent as:
- Your spouse or de facto spouse
- Your former spouse or de facto spouse
- Your children who are aged under 18
- A financial dependent
- An interdependent.
Your tax dependents are eligible to receive certain tax concessions on a super death benefit. However, the overall taxation of a death benefit is determined by how that death benefit is paid: as a lump sum, income stream or a mixture of both.
Learn about tax and super death benefits.
