Estate Planning With Self-Managed Super Funds
Written by: Helen Yau | Advisory Team
When most people think about estate planning, they immediately consider their Wills or how assets such as property and investments will be distributed.
However, one of the most overlooked aspects of estate planning in Australia is superannuation, especially for those who manage their own retirement savings through a Self-Managed Super Fund (SMSF). Unlike other personal assets, superannuation is generally not automatically covered by your Will, which makes proper planning essential.
This article explores the unique estate planning considerations for SMSFs, how they differ from industry and retail super funds, and why thoughtful planning is crucial to ensure your super benefits are passed on according to your wishes.
SMSF vs Industry Funds: Key Estate Planning Differences
The first key difference between an industry super fund and an SMSF lies in who controls the decision-making process after a member passes away.
Industry + Retail Funds: in large funds, the trustee of the fund has the final say over who receives your superannuation death benefits, unless a valid binding death benefit nomination (BDBN) is in place. Even with a non-binding nomination, the trustee can choose a different distribution if they believe another beneficiary has a stronger claim under superannuation law. This can sometimes create uncertainty for families.
Self-Managed Super Funds: in an SMSF, the members themselves are also the trustees (or directors of the trustee company). This means greater control over how death benefits are handled. With the right trust deed and valid nominations in place, your SMSF can provide more certainty that your super will be distributed according to your wishes. However, it also means more responsibility; poor planning could lead to disputes, delays, or outcomes that differ from what you intended.
In short, an SMSF gives you more control but requires careful planning and robust documentation to ensure your estate planning goals are met.
Not sure where to start your SMSF journey? Check out this article that we previously put together: Setting Up A Self-Managed Super Fund: What You Need To Know
Why Your SMSF Trust Deed Is Critical For Estate Planning
The SMSF trust deed is the governing document of the fund, and its wording directly impacts estate planning. The deed sets out the rules for:
- Who can be a member or trustee;
- Whether the fund can accept binding or non-binding nominations;
- How benefits are to be paid (lump sum, pension or a combination); and
- Whether reversionary pensions are allowed.
If your trust deed is outdated or silent on certain provisions, it could limit your options or invalidate certain instructions.
For example, if your deed doesn’t allow binding nominations, even the most carefully drafted form won’t be valid.
This is why regularly reviewing and updating your trust deed is critical. Superannuation law evolves over time, and trust deeds drafted many years ago may no longer reflect current rules. An up-to-date deed ensures your SMSF has the flexibility to carry out your estate planning intentions.
Understanding The Tax Rules For SMSF Beneficiaries
Tax outcomes for superannuation death benefits can be complex and depend on both the recipient and the form of the payment.
- Tax Dependents (for super purposes): a spouse, minor child, or financially dependent person is generally considered a tax dependent. Payments to these beneficiaries are usually tax-free, whether received as a lump sum or an income stream;
- Non-Tax Dependents: financially independent adult children do not meet the definition of a tax dependent. In these cases, lump sum death benefits may be taxed up to 15% (plus the 2% medicare levy) on the taxable component, and in some cases, up to 30% on certain elements; and
- Income Streams: where reversionary or new pensions are paid, tax treatment depends on the age of the deceased and the beneficiary. The rules can be nuanced and require careful analysis to avoid unexpected tax burdens.
This highlights the importance of working with a financial adviser who can map out not just who gets your super, but also how it should be paid to minimise tax. Strategic planning – such as withdrawing certain benefits while alive or adjusting how benefits are structured can significantly improve after-tax outcomes for your beneficiaries.
How SMSF Assets Integrate With Your Overall Estate Plan
Estate planning isn’t just about superannuation; it’s about looking at the whole financial picture. SMSF assets often form a large part of a person’s wealth, and decisions made in the fund can interact with other estate planning strategies. Some key considerations include:
- Interaction With Your Will: as superannuation generally doesn’t form part of your estate by default, your Will alone may not be enough to direct SMSF assets. Binding nominations and reversionary pensions are essential tools to align your SMSF with your overall estate plan;
- Liquidity and Asset Mix: SMSFs often hold property, business premises, or other illiquid investments. When a member dies, the fund may need to sell assets or restructure to pay benefits, which can have tax or cashflow consequences. Planning ahead can reduce the risk of forced sales at the wrong time; and
- Equalising Inheritances: for families with multiple children, ensuring fairness can be complex if the SMSF is heavily weighted with certain assets (e.g., property that only one child wants to keep). Coordinating your superannuation strategy with other assets in your estate can help achieve balance.
The key is integration, ensuring your SMSF estate planning aligns with your broader wealth transfer plan.
Who Controls Your SMSF When You’re Gone?
One of the most overlooked areas in SMSFs is succession planning for trusteeship. Who controls the fund after your death or incapacity matters just as much as who receives the money.
- Individual Trustees: if an SMSF has individual trustees, the surviving trustee(s) may have significant power over the payment of death benefits. This can be problematic if family dynamics are complex.
- Corporate Trustees: having a company act as the trustee often provides greater continuity and certainty. Control of the company (via directorship and shareholding) can be structured to align with your estate planning intentions.
- Enduring Powers of Attorney: if a trustee/member loses capacity, an attorney appointed under an Enduring Power of Attorney can step into their role, but only if permitted by the trust deed. Ensuring this is properly documented is essential.
Succession planning is ultimately about control, making sure the right people oversee the fund when decisions need to be made.
Canny Advisory + Estate Planning Financial Advice
Estate planning with a Self-Managed Super Fund offers a high degree of flexibility and control, but with that comes complexity and responsibility.
Unlike industry funds, where trustees make decisions within set rules, SMSF members must ensure their trust deed, nomination, and succession arrangements are carefully structured.
By reviewing your trust deed, considering tax implications, integrating your SMSF with your broader estate plan, and planning for trustee succession, you can significantly improve the chances that your superannuation benefits will be distributed smoothly and in line with your wishes. This is a highly specialised area where financial advice, legal input and tax expertise often overlap.
This is where Canny Group shines, we’ve got all of it under the one roof, a part of the one team! Now is the perfect time to sit down with a financial adviser to ensure your estate planning is not only in place but also future-proof.
Get in touch today to find out how we can assist you to ensure your estate plan is rock solid.
