What happens when both members of a SMSF die at the same time?


It’s the call that every adviser dreads – the death of a client activates the estate planning toolkit of Will, Binding Death Benefit Nomination (“BDBN”) and reversionary nomination for SMSF pensions.

But what if a husband and wife with their own SMSF both die in a car crash?
At the same time?

What is already a difficult emotional event for the family becomes so much more complicated. Whose estate plan takes priority? And what if their respective Wills differ regarding who benefits from their personal estates?

For blended families, it gets even more complex, as this example shows:

  • George and Marsha are married, but this is their second marriage – George has three boys from a previous marriage, whilst Marsha has three girls from a previous marriage.
  • George is 5 years older than Marsha, but Marsha has a health condition which on the face of it would make it likely that George will survive her, other things being equal.
  • Each of them wants to look after the survivor of them after they die, and super (via nominating each other as their reversionary pensioner) is the most convenient and tax-effective way to do this.
  • Each of them believes that this is sufficient to look after each other by making the other a reversionary beneficiary of their super pension, leaving them free to decide how to use their own personal estates to look after their own respective children under their own Wills.
  • In the meantime, they also each have in place a non-lapsing BDBN that nominates the legal personal representative of their own deceased estate, which they have not reviewed and on the face of it conflicts with the reversionary pensioner nomination.

If the unthinkable happens and both of them pass away at the same time, the possibilities might include:

  1. George is taken to die first as the elder of the two, so that:
    (a) his pension is taken to revert to Marsha, giving her the balance of his pension account; and
    (b) Marsha’s BDBN operates in relation to both her own super account and the account representing the balance of George’s pension, so the entire combined balance of the SMSF ends up going to Marsha’s estate to be dealt with under her Will for the benefit of her 3 girls, and none of it goes towards George’s boys.
  2. Or, if Marsha is taken to die first, it all goes the other way and the entire combined balance of the SMSF ends up going to George’s estate to be dealt with under his Will for the benefit of his 3 boys, and none of it goes towards Marsha’s girls.
  3. Or, maybe their respective BDBNs take precedence and their own respective super death benefits go to their own estates for the benefit of their own children.

Which is the correct outcome?
There are a number of considerations that can affect the outcome:

  • Which nomination takes precedence – the reversionary pension nomination or the apparently conflicting BDBN – largely depends on what the trust deed for the SMSF states.
  • As to which of the two members is taken to have died first in the eyes of the law, this can vary. In NSW, the deaths are presumed to have occurred in order of seniority.
  • The actual wording of the BDBN is also relevant. For instance, if the nomination under the BDBN is subject to the nominee surviving the member by 30 days, then if both persons have died at the same time it will be invalid.

Ultimately, the correct outcome is the one that your clients and their intended beneficiaries want and expect to happen. Therefore, best practice requires that you as their adviser should:

  1.  Talk about the issue with your clients – ask them what they want to happen to their super death benefits if (heaven forbid!) they were to pass away together;
  2. Check the SMSF trust deed to see what (if anything) it says about the issue, and the priority of a reversionary pension nomination over a BDBN or vice versa – and seek legal assistance if it doesn’t say the right things;
  3. In preparing the client’s reversionary pension nomination and / or their BDBN, insert a requirement that the nominee must survive the member by 30 days, to avoid any legal uncertainty; and
  4. Make sure that your clients each have in place an up-to-date Will that works in conjunction with their respective superannuation nominations.

DISCLAIMER:  Please note that these comments are for your consideration only and are provided to assist you in deciding whether to proceed to obtain a formal opinion on the issue.

SUPERCentral is an online SMSF Services provider to Accountants, Financial Advisers and SMSF Administrators.

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