SMSFs and death benefits

Before signing anything, read (or have your SMSF adviser read) the current trust deed on two points: (1) how a binding nomination is validly made, and (2) whether it lapses. Older deeds often import Reg 6.17A by reference — in which case the 3-year lapse applies — but many modern deeds allow non-lapsing BDBNs with different execution rules. The High Court's decision in Hill v Zuda Pty Ltd [2022] HCA 21 confirmed that Reg 6.17A does not automatically apply to SMSFs; the deed governs.

This is often more important than the BDBN itself. When a member dies, the surviving trustee (or trustees) decide how the benefit is paid — within the constraints of any valid binding nomination. In a two-member SMSF with individual trustees, the survivor may end up as the sole decision-maker over your death benefit.

A corporate trustee gives cleaner succession: the deceased's legal personal representative can typically step in as director until the death benefit is paid, preserving balance in a blended-family situation.

SMSFs can pay death benefits as a lump sum, a pension to an eligible dependant, or a combination. Reversionary pensions inside SMSFs are common and powerful, but the interaction with the transfer balance cap and with any binding nomination needs to be worked through — a reversionary pension nomination on the pension documents will usually override a BDBN in respect of the same interest.

Book a review with your SMSF adviser specifically on succession — not the annual audit, not the investment strategy — and confirm three things: the deed permits the nomination type you want, the nomination is executed exactly as the deed requires, and the trustee structure after your death gives the right person control.