When preparing a will, many people assume that all their assets will automatically be dealt with under that document. However, this is not always the case. One of the most common areas of misunderstanding about assets under a will relates to Self-Managed Superannuation Funds (SMSFs). Understanding how SMSFs and wills interact is essential to ensure your superannuation benefits are distributed according to your wishes.
Does a Will Cover an SMSF?
Superannuation, including SMSFs, does not automatically fall within the terms of your will. Instead, it is controlled by the SMSF trust deed and the requirements of the Superannuation Industry (Supervision) Act 1993 (Cth). This means that unless your SMSF arrangements specifically direct the benefits to your estate, your executor has no authority to deal with them under your will.
The Importance of a Binding Death Benefit Nomination
One of the most effective tools for directing SMSF benefits is a Binding Death Benefit Nomination (BDBN). A valid BDBN requires the trustee of the SMSF to pay your benefits to the person or entity you nominate. This may be a dependant such as a spouse or child, or you may nominate your legal personal representative to receive the benefit, which is then paid into your estate.
Where there is no valid BDBN, the trustee usually has the discretion to decide who should receive the benefit. These decisions can cause family conflict, delay, and litigation if different family members believe they are entitled to the benefit. For that reason, anyone with an SMSF should ensure they have a properly drafted and up-to-date BDBN as part of their estate planning.
Aligning SMSFs and Wills
An effective estate plan ensures that your SMSF trust deed, any BDBN you make, and your will are consistent with each other. Conflicts between these documents can create significant legal issues. If your will conflicts with your SMSF deed and BDBN, the SMSF documents will usually take precedence.
In some cases, you can direct your SMSF benefits to your estate and allow your will to determine their distribution. In other cases, it may be better to direct benefits to dependants directly through the SMSF. The best approach will depend on your family circumstances, taxation considerations, and the terms of your SMSF deed.
SMSFs and Wills: Avoiding Common Mistakes
Many disputes and complications arise because people assume their will alone is sufficient in accounting for assets. Without a valid BDBN, trustees may have the final say, which often does not reflect the deceased’s wishes. Another common mistake is allowing a nomination to lapse. In many funds, nominations expire after three years unless the trust deed provides for non-lapsing nominations. Failing to review and update your SMSF deed considering legal changes can also undermine your planning.
Why Legal Advice is Essential
SMSFs sit at the intersection of superannuation law, taxation, and estate law. Each area has its own rules, and without careful coordination there is a real risk of unintended consequences. Proper planning ensures that your wishes are carried out, your beneficiaries are protected from disputes, and the estate is structured in a way that minimises tax.
Next Steps
If you have an SMSF, reviewing your estate planning is not optional, it is vital. If you do not take the right steps, your superannuation benefits can end up in the wrong hands, or your family can face a costly dispute. Speaking to an experienced estate planning lawyer can give you peace of mind that your SMSF and your will work together to achieve your intended outcome.
Jake McKinley notes that this article is written for the purpose of providing generalised information and not to provide specialised legal advice. If you require qualified legal advice on anything mentioned in this article, our experienced team of solicitors at Jake McKinley are here to help. Please get in touch with us on 02 9232 8033 today to make an enquiry.
