When a member of a self-managed super fund (SMSF) passes away, it’s often a deeply emotional time. For many families, the person left to manage the fund is also the one grieving. While there’s a lot of focus on death benefit nominations and estate planning, one of the most important and often misunderstood areas is trusteeship.
Who takes over? What are the rules? And how can you avoid common mistakes?
Understanding the Role of the Executor
A common misconception is that the executor of the deceased’s estate automatically becomes a trustee or director of the corporate trustee. While SMSF rules allow an executor to step into this role temporarily, it doesn’t happen by default. The appointment must follow the process outlined in the fund’s trust deed or company constitution. This temporary role only lasts until the death benefit begins to be paid.
Who’s in Charge Immediately After Death?
In most two-member funds, the surviving trustee or director of the corporate trustee remains in control straight away. If the surviving spouse is also the executor, this can make things simpler. But if they’re not, it’s important to understand that the person already in the role has the authority to act. This is true even if the deceased was the only member of the fund, as long as there were two trustees or directors.
Why the Trust Deed Matters
Trust deeds vary, and they play a big role in determining what happens next. Some deeds state that a member’s status ends immediately upon death. Others allow membership to continue until the death benefit is paid. This difference can affect whether the fund remains compliant and whether changes to trusteeship are needed.
The Six-Month Grace Period
SMSFs have a six-month window to restructure their trustee arrangements after a member’s death without breaching compliance rules. This grace period gives families time to make necessary changes, but it’s still important to act promptly and with clarity.
The Role of Reversionary Pensions
If the deceased had a reversionary pension in place, the income stream continues automatically to the nominated beneficiary. This can simplify the process and reduce the need for immediate trustee changes. However, it also means the window for executor involvement may close sooner than expected.
Why It All Matters
Getting trusteeship right is about more than ticking boxes. It ensures the fund can continue to operate smoothly and that the deceased member’s benefits are paid out correctly. Every SMSF is different, and the trust deed and company constitution are key to understanding what needs to happen.
If you’re unsure about your fund’s structure or what would happen in the event of a member’s death, now is the time to review it.
This article is general in nature and doesn’t take your personal circumstances into account. For tailored advice, speak with a licensed SMSF specialist or financial adviser.
