Self Managed Super Fund: Death and Loss of Capacity

Self Managed Super Fund: Death and Loss of Capacity

by Jacqui Brauman

I recently attended a seminar at which Peter Pascoe, barrister, shared a paper on this very topic. Since more and more people and using self managed superannuation funds (SMSFs) as investment and retirement vehicles, this information is very relevant.

If you have a SMSF it is crucial that you think about who the executor is under your Will, and who you appoint under an enduring power of attorney, because they will exercise control over your super and retirement funds – who are you handing your money over to?

There were some important points and myths in it that I thought I would share with you:

What happens to my self managed super fund if I die?

• If there are two members of your self managed super fund (ie. husband and wife), generally you will have a binding nomination to leave your super to your spouse. Therefore, your spouse would receive your part of the super fund, and the super fund would become a single-member super fund. There may be some compliance changes that need to be met for this to occur.
• If you are a member of a fund in which you do not leave your share to the surviving members, then your legal personal representative (executor under your Will or your administrator) steps into your shoes as trustee and receives your death benefit from the super fund to pay in accordance with your instructions.
• If you are in a single-member super fund, then your legal personal representative will become the trustee and will wind up the fund. This fund cannot be restricted – it must be wound up as soon as practicable.

Does the legal personal representative have to be appointed?

No, your legal personal representative is not compelled to act as the trustee. They could appoint someone else as a replacement director of a corporate trustee, for example. Or they could appoint an APRA approved Regulated Superannuation Entity to be the trustee.

What is the timeframe for payment of the death benefit from my SMSF?

This should happen as soon as practicable. But there is no strict time frame. The self managed super fund will cease and therefore should be wound up within 6 months, unless an APRA approved Regulated Superannuation Entity is appointed.

What happens to my SMSF if I lose capacity?

If you lose capacity, hopefully you have executed an enduring power of attorney and appointed someone. “Legal personal representative” is defined broadly for the purposes of SMSFs and includes people appointed under a power of attorney. So your attorney will step into your shoes as trustee and member (the fund will not fail).

If you haven’t appointed someone under an enduring power of attorney, your family may have to seek an order from VCAT to appoint an Administrator. Although the legislation for SMSFs does not include Administrators as legal personal representatives, the Australia Tax Office has issued an Interpretative Decision in 2010 that in their view a legal personal representative also includes a VCAT appointed Administrator.