SMSF Succession and Estate Planning

Fund succession is the question of who runs the fund after a member dies or loses capacity. It is separate from the question of who receives the benefit, and it frequently determines the answer to it.

Why control decides the outcome

Where there is no valid binding nomination, the trustee decides how a death benefit is paid, and among which eligible dependants. After a death the surviving trustee or director is often the person with the most to gain from that decision. Where the fund has two members who are spouses in a first marriage, that is usually unproblematic. Where there are children from an earlier relationship, it is a predictable dispute.

A fund can also have a compliance problem the moment a member dies or loses capacity, because the rules about who must be a trustee or director are strict. Getting the position regularised quickly matters.

Individual against corporate trustee

A corporate trustee generally makes succession simpler. The company continues to exist, so the fund's assets do not need to be transferred when membership changes, and control passes through the company's shares and directorships in a way that can be documented in advance.

With individual trustees, a death or an exit usually requires assets to be retitled, and the trustee structure to be reconstituted within the time the legislation allows. That is administratively heavier at exactly the wrong moment.

What to put in place

• A valid binding nomination, which is the most direct way to take the decision out of the survivor's hands. See binding death benefit nominations.
• Clear trustee succession. Who becomes trustee or director, and how. For a corporate trustee that means dealing with the shares as well as the directorships, and checking what the constitution says.
• An enduring power of attorney. Where a member loses capacity, an attorney can generally step into the trustee role and keep the fund compliant. Without one, the options narrow considerably.
• Alignment with the will. The shares in a corporate trustee are an estate asset, so the will and the fund arrangements have to point the same way.
• A view on reversionary pensions, where a pension is being paid and the deed supports them.

A fund with one member, individual trustees, no nomination and no enduring power of attorney is a problem waiting for a date.

Single member funds

Single member funds need particular attention because there is no surviving member to carry on. The legal personal representative can generally step in during the administration of the estate, but that depends on probate, which takes time. Planning in advance is what keeps the fund functioning in the meantime.

This page is general information. It is not legal, tax or financial advice, and your fund's deed will change the answer.