Your Super Benefit does not form part of your Estate
Under current Superannuation Laws, your Super Benefit does not form part of your Estate on your death. This means that your Super Benefit will not be automatically distributed in accordance with your "Will" on your death. So in the event that you do not have a Death Benefit Agreement in place of your death (see below), your Super Benefit will be distributed in accordance with the provisions of your SMSF Trust Deed. The SMSF Trust Deed used by ESUPERFUND currently states that to the extent that no Death Benefit Agreement has been made to your SMSF prior to your death, your Super Benefit may be distributed in accordance with the discretion of the remaining Trustees of the SMSF. This may or may not comply with your intentions and more importantly may result in an unfavourable tax outcome. In addition the remaining Trustees may disagree on how to distribute your Super Benefit on death creating legal issues most of us would prefer to avoid.
Death Benefit Agreement
To ensure that your Super Benefit is distributed in accordance with your wishes on your Death you must make a Death Benefit Agreement. A Death Benefit Agreement "binds" the Trustees of your SMSF to pay your Super Benefit as you intend and not at the discretion of the Trustees. Please note that the Death Benefit Agreement used by ESUPERFUND differs to a Binding Death Nomination because it does not lapse after 3 years as is the case with a Binding Death Nomination. This is because the Death Benefit Agreement actually forms part of the Trust Deed and thereby binds the Trustees of the Fund to pay the benefit to the nominated beneficiaries specified in the Agreement. Features of the Death Benefit Agreement are as follows:
- The Death Benefit Agreement forms part of the Trust Deed (our Trust Deed is compliant)
- The Agreement is in writing
- The persons noted in the Agreement are made to Permitted Beneficiaries (see below)
- The amount to be paid to each person is clearly specified
- The Agreement is non-lapsing
- The Agreement is signed and dated in the presence of a witness over 18 who is not nominated to receive a benefit
Avoid Exposure of your Super Benefit to Legal Action
The classic example of what can go wrong if you do not execute a Death Benefit Agreement, is the case Katz vs Grossman, which stemmed from the death of Ervin Katz in 2003. In that case, the father (Katz) had been the sole remaining member of a SMSF. After his wife's death, he appointed his daughter as an additional trustee to the SMSF to allow the SMSF to continue. Before he died, he also indicated as part of his Will that he wanted to leave the money equally to his son and daughter. He did not complete a Death Benefit Agreement. After the death of Ervin Katz, his daughter had her husband join as a SMSF Member, which gave them control of the SMSF. The daughter then refused to pay her father's benefit according to the terms of her father's non binding request, triggering legal action by her brother (Ervin Katz's son). The Court Case cost several hundred thousand dollars in legal fees, but by not adhering to her father's request the daughter did not break the law. She had full control. All the above could have been avoided with a simple Death Benefit Agreement. In that case the benefit must be paid in accordance with the father's intentions. The daughter in the above case would have had no control over the benefit.
Under a Death Benefit Agreement, you can nominate the following beneficiaries to receive your Super Benefit on death. Each beneficiary is further explored here.
Spouse (includes former Spouse, DeFacto and same sex couples)
Child (including an adopted or step child)
Any Person who was a Dependant just before death (ie relied on you for financial maintenance)
Any Person with whom you had an 'Interdependency Relationship' just before death
Your Estate via your Legal Personal Representative (this is usually the Executor of your "Will")
Death Benefit Payment Options
There are two payment options of your Super Benefit on death: Pension or Lump Sum.
If the nominated beneficiary is a dependent of you, your Super Benefit on death can be paid as either a Lump sum or a Pension income stream. If the beneficiary is not a dependent of you, your Super Benefit on death must be paid as a Lump sum.
For more information on beneficiaries and the associated payment options click here.
If death benefits are paid as a Lump sum to a beneficiary they must be paid to the beneficiary directly and cannot be retained in the SMSF. This is very important because if it does get paid out as a Lump sum, the beneficiary may not be able to contribute it back into the SMSF again due to contribution rules.
Pension Income Stream
If death benefits are distributed as a Pension Income Stream to a beneficiary, the benefits can be retained in the SMSF in the form of a Death Benefit Pension provided that the beneficiary has sufficient Transfer Balance Cap space.
Please note that the beneficiary who receives the death benefit pension must also be a member of the SMSF.
For more information on Death Benefit Pension click here.
Who keeps the Death Benefit Agreement?
When you apply for a Death Benefit Agreement ESUPERFUND will send you two copies of the Death Benefit Agreement documentation. A copy of the Death Benefit Agreement documentation should be kept by you, the other copy should be kept by your legal representative who prepared your "Will" for you.
Update every 3 years Not Required
A Death Benefit Agreement is Non Lapsing. That is the Death Benefit Agreement used by ESUPERFUND differs to a Binding Death Nomination because it does not lapse after 3 years as is the case with a Binding Death Nomination. This is because the Death Benefit Agreement actually forms part of the Trust Deed and thereby binds the Trustees of the Fund to pay the benefit to the nominated beneficiaries specified in the Agreement.
Death Benefit Agreement Fee
There is no additional cost to implement a Death Benefit Agreement with ESUPERFUND.
To implement a Death Benefit Agreement for each member of your SMSF simply visit and submit an online application here.