The common thread to each of the options is that it is the rules of the particular SMSF, set out in clauses of the trust deed and related documents (collectively called the ‘governing rules’ of the SMSF) determine how the trustee structure is to be reconstructed on the death of a member as well as how death benefits are to be handled by you on the death of a member of the SMSF.

This is why the trust deed and related documents are critical in the estate planning process to determine what rules apply for all the members of your fund.

There are different ways an SMSF’s governing rules may deal with the provision of death benefits to dependants. Depending on who is controlling the SMSF after the death of a member and depending on what provisions are put in place in accordance with the rules of the trust deed as to who is to be paid a death benefit, the deceased member’s wishes may or may not be carried out.

For example, an SMSF trust deed clause may give total discretion to the surviving SMSF trustees to evaluate all potential eligible dependants of the deceased member and choose to whom and how much of the death benefit will be paid.

This type of clause can be invoked in circumstances where these are the wishes of the deceased member, in order to provide maximum flexibility to determine who should be paid at the time of their death. Alternatively this clause could apply where a binding death benefit nomination has failed for some reason and by default, it falls on the trustees to decide who is to be paid and how much. A binding death benefit nomination may fail simply because a person nominated was a dependant at the time the nomination was created but was not a dependant at the time of death. For example, a former spouse may have been nominated, and no alternative provided for.