Death Benefits

1. Who can receive the death benefit? The death benefit can be paid to beneficiaries such as the deceased member’s spouse, children, or anyone else nominated by the member.
2. Taxation of the death benefit: The tax treatment of the death benefit depends on the age of the deceased member and the age of the beneficiaries. If the member was under 60 years of age at the time of death, the benefit paid to the beneficiaries may be subject to tax. However, if the member was over 60 years of age, the benefit is generally tax-free. Also, tax may be applicable for death benefit payment to non defendant.
3. Death benefit nominations: To ensure the death benefit is paid to the desired beneficiaries, SMSF members must make a binding or non-binding death benefit nomination. A binding nomination means that the trustee must follow the member’s instructions, while a non-binding nomination is advisory and can be overruled by the trustee.
4. Trustee discretion: The trustee of the SMSF has discretion over how the death benefit is paid to the beneficiaries. This means that the trustee can choose to pay the benefit as a lump sum or income stream, and can also decide who the beneficiaries are if there is no binding nomination in place.

Death benefits in SMSFs are an important source of financial support for beneficiaries upon the death of a member. SMSF members should carefully consider their options and seek professional advice to ensure that their death benefit is paid to the intended beneficiaries in a tax-effective manner.