One of the key reasons people establish an SMSF is to gain greater control over their superannuation. That can include greater flexibility around investments, estate planning arrangements, and funds management decisions.
Some months ago, I wrote about why establishing an SMSF purely to reap the benefits of greater flexibility is a misstep. I said it then and I’ll say it now: The yearning for greater flexibility is not reason enough to justify the existence of an SMSF. There needs to be a bigger and truly defensible reason why such a structure makes sense for your specific circumstances.
That notwithstanding, flexibility is part and parcel of SMSF structures. And with that flexibility comes additional responsibility. SMSFs generally involve more decisions, more administration requirements, and more parties that need to work together. As a result, there is greater scope for estate planning issues to arise if arrangements are not regularly reviewed and kept aligned.
At a foundational level, industry and retail super funds slot into estate planning without much friction. While there are always exceptions to the rule, in general, so long as your will and binding death nomination are up to date and singing from the same sheet, issues triggered by misaligned structures are less likely to crop up.
SMSFs, on the other hand, have a few more factors at play. For your intended outcomes to be achieved with an SMSF, the various components of the estate plan need to work together and remain aligned.
The success of an estate plan requires all stakeholding components to be aligned and pointed in the same direction: Your will, binding death nomination/s, other super accounts, insurance within superannuation, trustee arrangements, and the trust deed itself. The emphasis here is on alignment. You can have each of these items in place, but if they aren’t aligned to the same estate plan, there’s little hope of that estate plan unfolding according to your wishes.
We tend to harp on about this at Ulton Wealth, but that’s because it’s so often missed, and so critical to get right. Too often, we encounter the assumption that listing super in your will automatically makes it a part of that will. This is not the case.
Where there is no (valid) binding nomination through super, the SMSF trustee has discretion over who receives the death benefit. Your will, on its own, cannot direct the trustee to pay your death benefit a particular way.
So, even if your will names the person or people you’d like to receive the superannuation death benefit, without a binding nomination in place, the trustee of your fund is not necessarily required to follow your wishes.
The greater flexibility and control of SMSFs tend to create an air of ‘with an SMSF, anything is possible’. This isn’t true on the whole nor as it pertains to binding death benefit nominations.
Regardless of whether the fund is self-managed, retail, or industry, there are strict eligibility criteria for who can be a death benefit beneficiary.
To put it simply, dependents and legal representatives are the only people who fit the bill of ‘valid beneficiary’. Contrary to popular belief, you cannot nominate your parents, siblings, cousins, or friends. That is, unless they are legally considered a dependent or in an interdependency relationship.
Broadly speaking, a dependent is defined as a spouse, a child, a person in an interdependency relationship, or a person financially dependent on you at the time of death (either partly or wholly). However, even here, there are some important nuances to understand. So much so, we recently dedicated an entire webinar to this topic. Watch it here: Ulton Wealth Management Superannuation Estate Tax Webinar | March 2026
As the governing document of your SMSF, your trust deed sets the rules around how death benefits can be dealt with. That includes whether your SMSF even allows for binding death benefit nominations, and if so, what the parameters are in terms of the form it needs to take and when it expires.
The biggest point to note here is that your deed can be more restrictive than superannuation law. If your nomination doesn’t comply with the deed, your trustee may not be bound by it.
Control is another area where flexibility can quickly turn into complexity. Unlike a retail or industry fund where an independent third party controls the fund in the event of your passing, an SMSF may ultimately be controlled by someone close to you.
Consider the situation where you have two children and one becomes the trustee of your SMSF after your death. Without a valid binding death benefit nomination, that child may have discretion over how the death benefit is paid, including the ability to favour themselves over their sibling.
It sounds like the stuff of myth, but unfortunately scenarios like these do occur. Katz vs Grossman is a widely publicised case where this situation unfolded through a messy brother-and-sister court battle. The moral of the story: If you don’t take control of your nominations and trustee arrangements before your death, things can quickly spiral out of control after it.
One of the ways that estate plans can come unstuck is in situations where multiple super funds exist. There’s nothing inherently problematic about having more than one super fund, provided there’s a strategic reason for doing so. However, when estate planning arrangements attached to each fund aren’t kept in step, major problems can arise.
Take this example:
John Brown has two super funds.
His SMSF has $2 million in it, and he nominates Person A to receive it.
His retail super fund has $50,000 in it, and he nominates Person B to receive it.
John has intentionally chosen to have a different beneficiary for each fund. However, he hasn’t factored in the fact that his retail fund also includes a $1million life insurance policy.
So in the event of his death, Person B may end up receiving $1.05 million, and not the $50,000 that John had in mind.
The lesson here is that you should not base your death benefit nominations on the face-value fund balance. As always, the devil is in the details. Make sure you and your advisor are across those details and understand the full amount that could ultimately be paid.
When it comes to estate planning, you need to look at the whole position, including the assets that sit inside and outside your will, and really examine how they all come together.
Take a testamentary trust, for example. You might set one up through your will in a bid to protect assets left to a beneficiary. However, if you also elect to have your super death benefit pass directly to that beneficiary, it never actually passes through the will, so the trust never comes into play. In this scenario, the death benefit completely bypasses the protection that the trust was designed to provide.
It’s difficult to stress just how important it is to detach from the thinking that your SMSF exists in a vacuum. When it comes to estate planning, you need to be thinking about the whole of your position, not just your will, your SMSF, or any other individual component within. The reason being — not one of these components stands alone. They are all interconnected, with dependencies and flow-on effects that can ripple across your estate plan. And that’s precisely why these arrangements should never be considered set-and-forget.
If it’s been some time since you reviewed your SMSF and estate plan together, get in touch for a confidential conversation at (07) 4154 0425.