One of the benefits of having your own self-managed super fund is that you get complete control over the assets you invest in. However, the control doesn’t end there.
Another benefit is being able to direct who will ultimately benefit from particular assets within super when you die.
The sole purpose of super is to accumulate wealth to fund your retirement. However, you need to consider who will benefit from any surplus in case you have not exhausted your super by the time you die.
If you want to direct specific assets to specific beneficiaries, then there are at least two well established ways to achieve this:
Directing assets through your ‘estate’
First, you can direct the asset held in super to be distributed to your estate (i.e. your legal personal representative) via a binding death benefits nomination (BDBN). Your Will can then set out who is to receive that asset after your death.
One benefit of this strategy is that you can impose additional conditions on the gift through your Will. For example, you can direct the asset to be held in a ‘testamentary trust’, with conditions such as when the beneficiary can control or sell the asset. This can be particularly useful if you have young beneficiaries who may not be mature enough to make sensible decisions with significant wealth.
Another benefit of this strategy is that you can direct the asset in your super fund to anyone, i.e. the beneficiary does not need to qualify as a ‘SIS dependent’.
This strategy is fine if your Will is unlikely to be challenged. However, it is not the only way.
Making a ‘death benefit rule’
If your Will may be challenged or you do not wish to direct assets through your personal estate, you may still be able to distribute the asset directly to the intended beneficiary.
You would do this by putting in place a ‘death benefit rule‘ (DBR) that requires the trustee of your super fund to distribute a particular asset to a particular beneficiary. However, the intended beneficiary must qualify as a ‘SIS dependent’, i.e. be a spouse, child or financial dependent.
A DBR is only available to self-managed super funds. It is a legally binding rule established at your request. The rule sets out how particular assets must be dealt with following your death, including the payment of specific assets to specific beneficiaries.
To implement this strategy, the trust deed of the fund must permit the trustee to establish a DBR. Alternatively, the trust deed can be amended to allow the trustee to establish a DBR. Whether a DBR is suitable will depend on your particular circumstances.
What to do next?
For assistance in dealing with the assets within your super fund, contact us on 1300 654 590 or email us.
The information contained in this post is current at the date of editing – 6 July 2023.
