SMSF members can now arrange binding Death Benefit Agreements that do not lapse after 3 years — the agreement binds the trustee(s) until the member revokes it.Paul Ellis and Julian Smith
ClearLaw has previously warned on the risks associated with making binding death benefit nominations that are not consistent with all of the requirements specified in superannuation law, including the 3 year lapsing requirement (click here to read more).
Many SMSF members want to bind their trustees as to how their benefits are to be paid after they die. The trouble is, superannuation law requirements say that after 3 years, a binding death benefit nomination expires. After it expires, the trustees (or other directors of the trustee) are free to distribute the relevant money anyway they like that the law allows — often, even to themselves.
SMSF members can eliminate uncertainty about how their death benefits will be paid by:
Provided that the right clauses are present, a SMSF deed can provide for SMSF members to make a Death Benefit Agreement that:
A Death Benefit Agreement is an agreement between an SMSF member and the SMSF trustee that — when executed — forms part of the SMSF's deed. The agreement specifies how the SMSF member's benefits are to be paid after the member dies in the same way that a binding death benefit notice does. But, because the Agreement is supported by the SMSF deed — and does not purport to be a binding death benefit notice under the superannuation law — it does not lapse until:
The Death Benefit Agreement depends on the SMSF deed containing the clauses that support the Agreement. Without those clauses, the Agreement would be invalid. So, any SMSF member with an existing fund who wishes to make a Death Benefit Agreement, needs to arrange for the SMSF's deed to be updated first.
Other good reasons to update SMSF deeds now are set out in another ClearLaw article.
For questions or more information about SMSF deeds, the payment of death benefits and succession planning generally call Maddocks in Melbourne (03 9288 0555) and ask for a member of the Maddocks Superannuation Team.
Daniel is a Senior Associate in the Maddocks Tax & Revenue team.Daniel advises extensively in the following areas:
His advice covers both direct and indirect tax considerations.
Prior to joining Maddocks, Daniel worked at a Big Four Chartered Accounting Firm focusing on tax consulting for mergers and acquisitions.
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For more information, contact Maddocks on (03) 9258 3555 and ask to speak to a member of their team.