Masterclass SMSF – Why is the trust deed the most important document when a member passes away?

Masterclass SMSF – Why is the trust deed the most important document when a member passes away?

SMSF – Why is the trust deed the most important document when a member passes away?

The SMSF trust deed is the first and most important document when a member passes away as it has the rules and determines how the death benefits are distributed. The trust deed sets out how death benefits are treated, especially if the deceased member had left conflicting instructions, but primarily because super is NOT part of an estate unless directed to go there.

In one complex example, an SMSF member signed a binding death benefit nomination signifying the sole recipient of their death benefit was to be their legal personal representative, that is, their estate, while also having a reversionary pension in place – but what was contained in the trust deed would determine the final outcome. Many deeds say that a binding death benefit nomination takes precedence over a reversionary pension, and others choose to go the other way. If the rules of the trust deed and governing rules of the reversionary pension were set up properly, the binding death benefit nomination would play a secondary role.

However, if the deed could not resolve the issue, court proceedings might arise as a result, so to avoid the heartache and costs for the trustee and the potential beneficiaries in the future, it is recommended that trustees conduct an immediate review with their advisors determine what is allowed, but also if any member had both a reversionary pension and a non-lapsing binding death benefit nomination, and find out if they were consistent, which arrangement might prevail under the trust deed and amend the trust deed if necessary.

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