What happens to the SMSF when I die?

When a member of your SMSF dies, their member’s entitlement must be cashed out as soon as practicable. Cashed out means just as it appears, but there is an exception to this rule. Those with financial dependants (as per the tax act) can be paid an income stream by the SMSF in the place of a lump sum payment.  This will allow the SMSF to continue unchanged with only the requirement to pay a pension to the dependant.  Dependants do not have to pay tax on the income they receive from this income stream.

Because your SMSF has a requirement to have at least a corporate trustee or two individual trustees, the death of a member/trustee/director has an impact on the SMSF.  A corporate trustee SMSF will be able to continue virtually unchanged (some change to ASIC registration details required) with a single member remaining.  If the SMSF is established with two individuals and only one remains, the SMSF will have to either establish a corporate trustee or bring in a new trustee to continue.  Bringing in a new individual trustee can be complicated, with children and other relatives having administration duties to perform on your SMSF each year.  Bringing in an individual trustee will necessitate the changing of names for each and every investment held in the SMSF. Your SMSF will also need to complete a trust deed amendment to reflect the new trustees of the SMSF.

If the last remaining SMSF member passes away, your personal legal representative can act as the trustee of your SMSF to facilitate the wind up and final payout of SMSF proceeds.  If you make a binding death nomination, the trustee will be bound to make the payment to whomever you nominate.