Business News

Trust deed crucial upon member’s death

The SMSF trust deed is the most important document when a member passes away as it ultimately determines how the death benefits are distributed, a leading superannuation legal firm has said.

Specifically, the trust deed would determine how death benefits would be treated if the deceased member had left conflicting instructions as to what was to happen upon their death, Townsends Business and Corporate Lawyers said.

The legal firm cited the situation of where an SMSF member signed a binding death benefit nomination signifying the sole recipient of their death benefit was to be their legal personal representative, that is, their estate, while also having a reversionary pension in place as being an instance where what was contained in the trust deed would determine the outcome.

“Who gets their hands on the death benefit depends on what the trust deed says,” Townsends said.

“Most deeds say that a binding death benefit nomination takes precedence over a reversionary pension, although some choose to go the other way.”

The law firm went on to say if the rules of the trust deed and governing rules of the reversionary pension were set up properly, the binding death benefit nomination would play a secondary role.

Townsends emphasised attention to the detail incorporated in the trust deed was imperative in these situations because if the deed could not resolve the issue, court proceedings might arise as a result.

“Such a situation could create a lot of heartache and costs for the trustee and the potential beneficiaries in the future,” the law firm said.

As such, it recommended advisers and trustees conduct an immediate review of the fund to determine if any member had both a reversionary pension and a non-lapsing binding death benefit nomination, and find out if they were consistent, which arrangement might prevail under the trust deed and amend the trust deed if necessary.

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