When you complete a binding death benefit nomination in your SMSF, you can only nominate certain people under superannuation law.
You can nominate your spouse. This includes a married spouse or a de facto partner.
You can nominate your children. This includes children under 18, adult children and children who are financially independent. A child does not have to be financially dependent on you to be nominated.
You can nominate a person who is financially dependent on you. This is someone who relied on you for ongoing financial support.
You can nominate a person who is in an interdependency relationship with you. This is someone you live with and where there is a close personal relationship involving financial support and domestic care.
You can also nominate your “legal personal representative of my deceased estate”. This means your superannuation death benefit is paid to your estate and distributed under your Will.
There is an important tax issue for adult children who are not financially dependent. They can receive your superannuation death benefit, but they may pay tax on the taxable component of the benefit. This is a tax outcome under Income Tax Assessment Act 1997 section 302-195, not a restriction under superannuation law.
You cannot nominate parents, siblings or grandchildren unless they are financially dependent on you or in an interdependency relationship with you. You also cannot nominate companies or trusts directly. These parties may only benefit indirectly, usually through your estate, and only if your SMSF trust deed allows it. A deed review is essential before relying on any nomination.
SMSF Will and Death Benefits Trust Option
Some SMSF trust deeds allow a different approach using an SMSF Will, sometimes called a death benefit rule. Instead of paying the benefit directly to a person, the trustee may pay it to a separate trust established under the SMSF deed. The trust then controls who benefits, when and how. This may assist with asset protection from divorce, bankruptcy or family disputes, and can provide long-term control for children or future generations. This trust operates separately from your personal Will.
This option is not automatic. It only works if your SMSF trust deed specifically allows it. The trust must be properly documented and legally supported. A standard binding death benefit nomination on its own cannot create this outcome. A full trust deed review is essential before considering this strategy.
Want to know more? Reach out. Email romy@freedomffs.com.au
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The legal basis for who can receive a death benefit is set out in sections 10, 59 and 62 of the Superannuation Industry (Supervision) Act 1993 and regulation 6.22 of the Superannuation Industry (Supervision) Regulations 1994. Tax treatment of death benefits is governed by Division 302 of the Income Tax Assessment Act 1997.