Masterclass SMSF – What happens with an SMSF Member death with a Non-Commutable Death Benefit Pension

Masterclass SMSF – What happens with an SMSF Member death with a Non-Commutable Death Benefit Pension

SMSF – What happens with an SMSF Member death with a Non-Commutable Death Benefit Pension

What happens with an SMSF member  with a Non-Commutable Pension (cannot take out lump sums or withdraw the full amount) who has recently re-married, and on her death wants to have the income distributed to her spouse, but on the death of the spouse, would like the capital to go to her son of previous marriage. She has a single-member SMSF, and the new husband as the other Trustee. How can these events be achieved?

The Trust Deed (SMSF governing rules) will need to be checked to see if we can do the above – rarely can this sort of detail be noted in a trust deed. Then we vary the deed to specify this specific situation, so that on her death, her pension benefits are paid to the dependent spouse, as a non-commutable death benefit pension ( ie it cannot have a lump sum or the full amount withdrawn), and that on his death, the son will get the final capital.

What are the Potential Problems?

One potential problem is that on the death of the lady, the new spouse will become a member (Section 10(3) of the Superannuation Industry (Supervision) Act 1993 (Cth), or SIS Act). As a member he must become trustee (or director if there is a corporate trustee). This really means he now has FULL control of the SMSF and consequently, FULL control of all the assets! If he doesn’t get on with the son he could override the Trust Deed and possibly take all the money and put that in his own member account or other manoeuvres. When he dies, his account becomes his death benefit which can ONLY be paid to his dependants or legal personal representatives. Hence the son would miss out. The benefits would need to be paid to the spouse’s estate and the son would need to be specified in the spouse’s will as a beneficiary. Wills can be changed, so the payment to the estate could be halted there. A Mutual Wills agreement may assist to mitigate such risk. The son, also, as a third party could challenge the husband’s estate under a testator’s family maintenance claim.

As always, many costs and heartache can be saved by getting advice!

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Self-Managed Superannuation Service Providers in Australia. WE do not provide Financial Advice or any other service that requires a legally authorized provider. However, where such advice or service is required we have our ‘Connect Assist’, a SuperBenefit resource we use to connect clients to a Licensed Advisor or other legally authorised service provider. SuperBenefit provides a wholistic SMSF assistance, education and administration service continuum - 1. “assistance” is help of whatsoever nature where our overall SMSF experience and knowledge enables us to provide assistance/help without any legal (or “license”) limitations. 2. “education” involves providing knowledge through teaching, coaching and mentoring about all matters SMSF, including (but not limited to) investment issues such as equities and property, 3. “administration” encompasses all admin aspects of legally required SMSF trustee and member record keeping including (but not limited to) audit and ATO matters. In keeping with our key point that SuperBenefit does not provide Financial Advice, where issues arise from 1, 2, and/or 3 above Indicate a need for a legally authorized provider (such as a Financial Adviser) and the client does not have their own service provider, the client can utilize SuperBenefit’s ‘Connect Assist’ … SuperBenefit, in itself, does not provide Financial Advice, but it does provide the wherewithal for great SMSF service. Call us 0407 361 596, no obligation FREE Connection call to see how we can help you!
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