Who can be nominated as a reversionary beneficiary?
- Child < 18
- Child > 18 if they meet the following criteria:
- 18–25 and financially dependent, or
- Have a disability as outlined in the Disability Services Act.
- Financial dependent (at time of death)
- A person who is in an interdependency relationship (at time of nomination and time of death)
If your reversionary beneficiary is a child under the age of 18 at the date of your death, they can only receive your pension as an income stream until they turn 25, at which point they must convert the remaining pension into a tax-free lump sum, unless they suffer from a disability
- Spouse (including de facto and same-sex couples)
- Including natural, step or adopted and children of your spouse. In order to receive the benefit tax-free, children must be under the age of 18. A child over the age of 18 can only receive the benefit tax-free if they are financially dependent on you or have a disability (as defined by legislation)
- Two people have a close personal relationship and they live together; and
- One or each of them provides the other with financial support; and
- One or each of them provides the other with domestic support or personal care.
An interdependent relationship also exists if two people have a close personal relationship and the other requirements are not satisfied because either or both of them suffer from physical, intellectual or psychiatric disability or because they are temporarily living apart.
Dependents for tax purposes
The definition of ‘dependent’ is different for tax purposes, and includes:
- Spouse or former spouse (including same-sex couples)
- Child < 18
- Financial dependent
- Inter-dependent (as defined above)
The distinction between dependents for superannuation purposes and dependents for tax purposes is important, because dependents for tax purposes will receive your superannuation tax-free if it is paid as a lump sum after your death.
What happens if my reversionary beneficiary is not a member of the same SMSF as myself?
Regulation 1.06 does not mention if the reversionary beneficiary is required to be in the Fund or not (http://www.austlii.edu.au/au/legis/cth/consol_reg/sir1994582/s1.06.html).
When the member of the Fund passes away then the reversionary pension can be paid to the beneficiary. You just need to ensure that all other legislative concerns, RE Death of a member are adhered to.
Death of a sole member
If you die you will of course cease to be an individual trustee, or a director of the company trustee, of your Fund.
- Individual trustees
If there are 2 individual trustees, and you as the sole member die, then the other individual trustee will be left with total control over the fund. You need to be confident that the remaining individual trustee will exercise any discretion available to them (e.g. paying out death benefits) in accordance with your wishes. Under this scenario we recommend that a binding death benefit rule be in place.
- Company trustee
If you were the sole director of the trustee company, then following your death there will be no one to run the company. Under this scenario, your super benefits will be effectively locked-up until the shareholder of the company can appoint a replacement director. If you were the only shareholder, then appointing a new shareholder will require probate of your Will. This can take some time.
Accordingly, we recommend that either another director be appointed from the outset to act alongside you, or the company trustee appoints someone as the company’s attorney, so that this person can act on behalf of the company if you die. Under this scenario we also recommend that you put in place a binding death benefit rule.