Superannuation is held in trust for its members until a condition of release is met. Death is a condition of release so the trustee can pay the super death benefits of the deceased out.
However, under the SIS Act the death benefits can only be paid to certain people who are classed as “SIS Act dependants” or to the estate:
A SIS Act Dependant includes
– A spouse (married or de facto)
– Any child
– Any person with whom the deceased had an interdependency relationship
Or to the estate:
– The deceased’s legal personal representative (executor or administrator of estate)
Who the benefits are paid to amount the above is determined solely by the trustee of the fund, subject to the trust deed or a valid binding death benefit nomination (BDBN).
Under trust law a trustee cannot be directed by others – a trustee’s discretion cannot be vetted. To get around this trust deeds can direct that the trustee must follow a written direction such as a BDBN.
Some funds only allow a 3 year BDBN which then lapses. If you don’t or cannot renew then the BDBN expires and won’t be effective.
Without a valid BDBN the trustee will decide where your super goes. If you have your super in an industry fund strangers will decide. If you have 2 children and one is a member of your SMSF then this child will decide where your super goes – to themselves only possibly.
People’s super balances are increasing and together with life insurance proceeds it wouldn’t be unusual for an average person’s super balance to be over $1mil on death.
Tip – make sure you understand where your super will go when you die and do something about it if there is a chance it could end up somewhere you don’t want it to go.
Originally posted at
I have recently come across a client who had their trust deed signed by the settlor, electronically. The settlor had inserted a jpeg of her signature in the deed and emailed it to the client for signing. There was no original copy. It was also electronically signed by the witness of the settlor. It is not known if the witness was present with the settlor when it was signed, or if they signed the same document.
This deed would fail. It is not executed.
Another client had their deed signed by the accountant who set the trust up, but it was also witnessed electronically – one of the accountant’s witnessed the client’s signature. Interestingly signatures were ‘witnessed’ from afar!
This deed also fails.
Deeds cannot be signed electronically in any state of Australia. There is one exception now due to recent amendments to the Conveyancing Act, s 38A, in NSW. This new legislation does allow for deeds to be signed electronically, from 2019, but the legislation does not cover side issues such as how can an electronically signed deed be witnessed? When 2 people sign a document on different computers they are not signing the same document so will this be valid?
Can companies sign electronically?
What happens when someone dealing with the trustee wants to see the original deed? If you were to print it out would it be original? How could a certified copy of the deed be made?
My tip: Do not sign any deed electronically, even if you are an individual based in NSW. Print out the deeds and sign with a pen.
If you have signed a deed electronically seek legal advice on how to rectify this problem, even if located in NSW. And don’t go back to the same firm that caused the problem in the first place as they are likely to not know about the issue or how to fix it.
Not many realise but a SMSF can negative gear property, and even shares potentially.
It works the same way inside a SMSF as outside. Any loss from an investment can reduce the taxable income of the fund which saves tax on that income.
A SMSF has a property with a $15,000 loss after all expenses are taken into account.
The member of the fund contributes $20,000 into the fund in the form of compulsory employer contributions. This is normally taxed at 15% which would be about $3,000 in tax.
But with the loss from the property the income of the fund becomes $5,000 (-$15,000 + $20,000 = $5,000).
The tax on $5,000 would be $750.
So, having the property would be saving the fund $2,250 in tax in that year.
Note that I am not suggesting that I think property in a SMSF is a good investment.
Where there are 2 spouses and children if one of the spouses dies and the other inherits the assets of the deceased this can pose a risk to the children.
Marge and Homer own about $2mil worth of assets – some joint some separately but roughly equal. So that is $1mil net worth each.
They have 3 children, but in their wills everything goes to the surviving spouse, if still alive and if not to the children.
This means if Homer dies Marge will inherit the full $1mil that he owned. But if Homer and Marge die together the children will inherit all of the $2mil in equal shares. What could happen if Marge inherits the $1mil and not the kids?
What’s the risk?
If Homer dies Marge could
See my post on this
Legal Tip 197: Consider the remarriage Risk when doing a Will
For example, Marge might
One potential solution
Leave your share of your assets to either
This way the surviving spouse still has their share of the original assets and the children have access to their share. You can structure the TDT in many ways including
Where the main residence is jointly owned, this could either
Seek legal advice on what you could do in your specific circumstances.
Written by Terryw Solicitor at Structuring Lawyers Pty Ltd www.structuringlawyers.com.au
We have seen that it can be possible for a discretionary trust to distribute income to a SMSF if the SMSF is a beneficiary of the trust. See my legal tip
But just because it can be done doesn’t mean it should be done.
Any distribution from a related discretionary trust received by a SMSF will be classed as NALI or ‘Non Arms Length Income’.
NALI income will be taxed in a SMSF at the highest marginal tax rate.
Income from Fixed Trusts to a SMSF can be taxed at normal SMSF rates, 15% generally, but only where the income is genuine non-NALI income. For example a SMSF owning units in a Fixed Unit Trust which owns a factory. Genuine rent can flow through to the SMSF and be taxed at 15%. But if a discretionary trust distributes income to the unit trust this would flow through to the SMSF but be taxed at the top marginal tax rate.
The reasons for these laws are to stop people diverting income to SMSFs to save tax.
Discuss this at https://www.propertychat.com.au/community/threads/tax-tip-196-discretionary-trusts-distributing-income-to-a-smsf.38915/
A SMSF is a trust and a discretionary trust could potentially distribute to another trust. But, the Trustee of a Discretionary Trust can only distribute income to beneficiaries of that trust if the SMSF meets the definition of beneficiary as defined in the deed. If the SMSF is a beneficiary of the discretionary trust then it would be possible for it to receive income and/or capital from the discretionary trust.
BUT (and there is always a but) – just because it could be done doesn’t mean it should be done. See my tax tip for some of the tax consequences.
Discuss this topic at https://www.propertychat.com.au/community/threads/legal-tip-198-legal-tip-can-a-discretionary-trust-distribute-income-to-a-smsf.38916/
The executor of an estate has fiduciary duties to maximise the estate of the decreased. There can be conflicts of interest where someone is both executor and they apply, in their personal capacity, for the superannuation death benefits of the deceased, and this is because they are trying to avoid having the super death benefits paid into the estate, to benefit themselves.
Mum and Dad divorce many years ago, son dies without a will. Son has about $40k in assets plus about $400,000 in super death benefits. Under the intestacy laws where a person dies without a spouse and children then both parents will benefit equally from the estate.
The issue here is that $40k is in the estate and will go to each parent in the share of $20k each.
If the superfund pays the death benefits to the estate the parents will get another $200,000 each.
If the superfund pays the mum, dad will miss out on $200k and similar if the superfund pays dad.
But, by mum applying for the benefit herself she is depriving the estate the money which means she is potentially breaching her duties as executor. As executor she should be asking the superfund to pay the money into the estate – it is her legal duty to do so.
Moral of the story – seek legal advice before accepting the position of executor, especially if the deceased