When it comes to estate planning in an SMSF, it isn’t a case of anything goes. There are a number of specific rules regarding how benefits can be paid out, and who exactly can receive them directly from the SMSF.
SIS Reg 6.21(1) says that the member’s benefits must be ‘cashed’ as soon as practicable.
This requirement can be satisfied in three ways:
So who is included in this definition of a dependant, and as such qualifies as someone who can receive a lump sum death benefit directly from an SMSF.
Under the SIS Act, a “dependant” includes a member’s spouse (including a de facto), children of any age, and any person with whom they had an “interdependency relationship”.
An interdependency relationship between two people includes:
(a) where they have a close personal relationship; and
(b) they live together; and
(c) one or each of them provides the other with financial support; and
(d) one or each of them provides the other with domestic support and personal care.
This SIS definition is inclusive, but it is not exhaustive and therefore a commonly accepted inclusion in the definition is also any other person who was a financial dependant of the member – in other words, they relied on the member for financial support just before their death.
Remember, a SMSF can’t pay the member’s benefits directly to a non dependent. The exception to this is where, after reasonable inquiry they cant find any of the member’s dependants or their legal personal representative (i.e. the executor of their Will).
When it comes to death benefit pensions, the definitions are much the same as above, however they change a bit when it comes to children.
With children, instead of the dependent being a child of any age, a child can only receive a SMSF death benefits pension if: