Life events and your SMSF

Administering and ReportingSMSF InsightsUnderstanding SMSFs

Life events and your SMSF

Your SMSF is highly likely to be affected, either for better or worse, by the life events that befall you as a member of your SMSF. This is because you are not only a member of your SMSF, but also a trustee, tasked with the obligations to manage and look after the fund and its assets for the benefit of all members of the fund.

Events such as marriage, divorce, death or aging of members, changing business or personal relationships between members, or changes in other factors over which you have no control such as a downturn in economic conditions or political turmoil which affects investment markets, can all have an impact on your SMSF.


A marriage or entering into a new de facto relationship of a member of an SMSF will require a number of issues to be addressed.

The new partner or spouse may want to become a member of the SMSF and roll over their superannuation entitlements from their other superannuation arrangements. While rarely overly prescriptive these days, the rules in the trust deed of the SMSF in relation to acceptance of new members should be consulted and followed.

Consideration should be given to executing new binding death benefit nominations in favour of each other, again carefully following the requirements of the SMSF trust deed to ensure the nominations are legally binding. This would also have the benefit of effectively revoking any earlier binding nominations made previously in favour of others.

Don’t forget that it is possible to direct your superannuation on your death to your estate using a binding death benefit nomination. If this is appropriate, then ensure your Will can accommodate this strategy. It is always a good idea to review both your Wills in these circumstances in any event (or have one drafted and executed if either of you don’t have one).

Along similar lines, if you have already commenced a pension, it may be advisable to consider ceasing the pension and recommencing it with the new spouse as the nominated reversionary pensioner. This would also revoke any earlier reversionary nominations made in favour of someone else.

The giving and acceptance of enduring powers of attorney (EPOAs) is always a good idea if you have an SMSF. If either of you lose capacity for any reason, the other is able to act on your behalf in relation to affairs of the SMSF.

If marriage or commencement of a de facto relationship is a precursor to children or simply to entering into shared financial debt such as mortgages and so on, then insurance as part of your superannuation arrangements is an equally good idea. Life, total and permanent disability and income protection insurance are appropriate to consider, depending on the individual members’ circumstances. Failure to adequately insure for life’s events can leave one or both of you in catastrophic financial circumstances should something adverse occur. There is the added benefit that insurance through superannuation is highly tax effective, with all premiums being tax deductible and the proceeds generally tax free when spouses are the beneficiaries of the proceeds.


The break-up of a marriage or the end of a de facto relationship is to some extent the mirror opposite of the issues discussed above. Rather than setting things up between a couple, you are breaking them down.

Binding death benefit nominations are automatically ineffective where a former spouse is nominated. Consideration needs to be made to redirecting your superannuation by way of a new death benefit nomination on your death to others, such as children or your estate for example.

Reversionary nominations in relation to pensions in favour of former spouses are also ineffective. Very few people other than spouses are eligible to be nominated as reversionary pensioners, so if you don’t currently have one, then you can just leave your pension to run as it is. Consider executing a binding death benefit nomination in relation to others such as children or someone financially dependent on you.

In some States, Wills are revoked by divorce, but not in all States. Reviewing and changing your Will is part of this rearranging of your personal affairs.

The Family Court of Australia has jurisdiction over separation and divorce in relation to both legal marriages and de facto relationships in the majority of States. The Court can make orders in relation to your superannuation or your former (or soon to be former) spouses’ superannuation. As a result of those Court orders, one of you may be required to move your superannuation account out of your SMSF. This is not optional if such an order is made. Capital gains tax relief is available for assets moved between funds in these circumstances.


Getting older can be challenging when dealing with the requirements of being a trustee of an SMSF for some. Reduction in or loss of capacity due to poor physical or mental health can impact on a person’s ability to look after their SMSF.

The exercise of an enduring power of attorney (EPOA) given by you to someone who is able to undertake those trustee responsibilities on your behalf can be one answer. This is a perfectly acceptable and legal solution to such a problem.

If there is no-one who can be given this responsibility to act on your behalf, then wind up of the SMSF and the roll-over of your account balance to alternative superannuation arrangements where no trustee responsibilities are required, may be the only answer.

Similar considerations need to be looked at where the SMSF is no longer viable. This can come about due to a general lack of interest in continuing the SMSF and all that that entails, or member account balances being significantly reduced due to pension or lump sum benefit payments being made. Whatever the reason, wind up of the SMSF may be appropriate.

Death of a member

Death of a member of your SMSF is always a traumatic experience. Dealing with your SMSF is often the last thing you need to worry about, but can be necessary if it is not set up appropriately. This is why it is highly recommended that all SMSFs have a corporate trustee.

If your two member SMSF has a corporate trustee, for example, and the other member dies, then it is possible that you as the surviving member can continue on using the corporate trustee and be the sole director. ASIC simply needs to be notified of the death of the former member/director of the corporate trustee.

If your same SMSF has individual trustees on the other hand, then as the surviving individual trustee, you cannot legally continue on as the sole individual trustee of your SMSF. This means that you must find someone else willing to act as your second trustee, someone else who is interested in becoming a second member of your SMSF (and so a second member/trustee) or you need to convert to using a corporate trustee arrangement.

In each of these cases, it will be necessary to go to each and every asset registry and bank and change the investments of the SMSF to the names of the new trustees of your SMSF. Failure to do so can result in hefty fines imposed by the Australian Tax Office, as Regulator. All assets and investments of your SMSF must be in the names of the current trustees of your SMSF, in this case, the individual trustees or the new corporate trustee.

This is just one of a number of examples of where having a corporate trustee makes life easier for you to look after your SMSF.

Remember also that it is possible for the executor of the deceased member’s estate to act in their place as an individual trustee or director of a corporate trustee of your SMSF until such time as a death benefit is paid. It is possible and acceptable if that executor is you, as the surviving member of your SMSF as well as executor of your deceased spouse’s estate. The law recognises you as having two separate legal capacities in these circumstances.

Change in business arrangements

Often an SMSF will have spouses and other family members as members of the SMSF. These individuals may also be involved in a family business together. The SMSF may be the owner of important family business assets, such as the business real property used by that family business.

Remember that while such arrangements are very effective in channelling rental income for example from the business to the SMSF to help fund retirement benefits of the members, in addition to any contributions that business may also make for those members, and can also provide asset protection for those important business assets from creditors, certain events must be planned for.

In these circumstances, the death of a member of the SMSF can complicate these family arrangements. This is because the law requires that a death benefit must be paid as soon as possible after the death of a member. Where a significant value of the fund’s assets are invested in an asset such as business real property used in a family business, problems can arise for you as the surviving trustee in meeting your obligations to make a death benefit payment as soon as possible after the death of the other member. Insurance may be an appropriate solution here. How this might be put in place will form the basis of a later paper and webinar.

Similarly, divorce of the members of the SMSF can put these arrangements under pressure, as can family members becoming estranged.

The important thing to remember here is that the assets owned by the SMSF are not as readily available as assets owned personally and this needs to be considered and planned for where possible.

Things happen!

While not meant to be an exhaustive list, the above represents some of the more common events that require trustees to respond and take action in their capacity as trustee of their SMSF. We can never predict which, if any, of these might happen. However, understanding your responsibilities and getting appropriate and qualified advice on pre-emptive strategies that may be put in place or at least an understanding of what you may need to do in these circumstances, can go a long way to making these difficult times a little less stressful at least in relation to dealing with your SMSF.

We strongly advise that you use a qualified SMSF Specialist to assist you on your specific circumstances.

Disclaimer: The information contained in this document is provided for educational purposes only, is general in nature and is prepared without taking into account particular objective, financial circumstances, legal and tax issues and needs. The information provided in this article is not a substitute for legal, tax and financial product advice. Before making any decision based on this information, you should assess its relevance to your individual circumstances. While SMSF Association believes that the information provided in this article is accurate, no warranty is given as to its accuracy and persons who rely on this information do so at their own risk. The information provided in this bulletin is not considered financial product advice for the purposes of the Corporations Act 2001.