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Hewison Private Wealth - Insights
Hewison Insights

SMSF pensions and estate planning

Chris Morcom
Partner & Wealth Adviser
20 Nov 2023

Self-Managed Superannuation Funds (SMSFs) have become increasingly popular in Australia as a retirement savings vehicle. One of the key advantages of SMSFs is the control they offer over investment decisions and retirement income strategies. However, when it comes to estate planning, SMSFs require careful consideration to ensure that your wealth is distributed in accordance with your wishes.

Some key aspects to consider are:

  • Binding Death Benefit Nominations (BDBNs): SMSF members should have a valid BDBN in place to specify who should receive their superannuation benefits upon their death. A BDBN provides certainty and minimizes the potential for disputes among beneficiaries.
  • Tax Implications: Different beneficiaries face varying tax consequences when they inherit your superannuation. Spouses and financially dependent children usually receive the superannuation benefits tax free, while adult children may be subject to tax. There are strategies that can be used to reduce the tax burden that apply to death benefits paid to adult children and you should seek advice from a qualified adviser to find out more.
  • Testamentary Trusts: Creating a testamentary trust in your will can be an effective way to protect and distribute your superannuation benefits. This structure provides more control over how the funds are managed and disbursed to beneficiaries and can minimize tax liabilities. It also allows distribution of funds to beneficiaries who are not your spouse or children. It is important to note that your will does not automatically deal with your superannuation benefits, and you will need to ensure you have a BDBN in place to your estate if your intention is for your will to distribute your SMSF benefits.
  • Reversionary Pensions: SMSF members can nominate their spouse as the reversionary beneficiary, ensuring that the pension continues to be paid to the surviving spouse without triggering a lump sum payment and its associated tax implications. SMSF members will need to ensure that the receipt of a reversionary pension does not cause them to exceed their Transfer Balance Cap, so obtaining appropriate specialist advice at the time is important.
  • Seek Professional Advice: Estate planning can be complex, and the rules surrounding SMSFs are subject to change. It is crucial to seek advice from a qualified financial advisor or legal expert who specializes in superannuation and estate planning to ensure that your wishes are carried out effectively.
  • Regular Reviews: Keep your estate plan up to date, especially if your personal circumstances change, such as marriage, divorce, the birth of children, or the death of beneficiaries. Periodic reviews ensure your SMSF aligns with your current intentions.

SMSFs offer flexibility and control over retirement savings, but they also require careful estate planning to ensure that your superannuation benefits are distributed as you intend.

With the right strategies in place, you can protect your wealth and provide for your loved ones in a tax-efficient manner, giving you piece of mind in your retirement years and beyond.

If you would like to review your SMSF arrangements, please contact us to arrange a meeting with on of our highly qualified advisers.